Sputtering car makers vehicle production sinks US manufacturing output in January

WASHINGTON — US manufacturing fell sharply in January, led by the biggest drop in motor vehicle production since the recession, the latest indication that the economy was losing momentum.

The Federal Reserve’s report last week came on the heels of data on Thursday showing retail sales tumbling by the most in more than nine years in December. The string of weak reports together with tame inflation are supportive of the Fed’s pledge to be “patient” before raising interest rates further this year.

“It looks like Fed officials were smart to stop their gradual rate hikes as the economy seems to have entered a soft patch,” said Chris Rupkey, chief economist at MUFG in New York.

Manufacturing production slumped 0.9% in January, the biggest drop in eight months. Data for December was revised down to show output at factories rising 0.8% instead of the previously report 1.1% surge. Manufacturing accounts for about 12% of the US economy.

Motor vehicle and parts production tumbled 8.8% last month, the largest drop since May 2009, when the economy was in recession. Motor vehicle assemblies fell to an eight-month low rate of 10.6 million units.

Automakers are cutting back on production to manage bloated inventories of some models in anticipation of declining sales this year. Production is also dropping as a few plants are changing over to new models.

But even stripping out motor vehicle production, manufacturing output decreased 0.2% in January. Factory activity is slowing as some of the boost to capital spending from last year’s $1.5-trillion tax cut package fades.

In addition, a strong dollar and cooling growth in Europe and China are hurting exports. Lower oil prices are also slowing purchases of equipment for oil and gas well drilling.

While a separate report from the New York Fed on Friday showed factory production in New York state picking up in February after cooling for two straight months, the pace remained close to a twoyear low. The New York Fed’s Empire State business conditions index rose to a reading of 8.8 from 3.9 in January.

“Manufacturing output growth will probably continue to trend lower over the coming months,” said Andrew Hunter, a senior US economist at Capital Economics in London.

US stocks were higher amid growing optimism over trade talks between Washington and Beijing. The dollar rose marginally against a basket of currencies, while US Treasury prices fell. In a third report last week, the Labor department said import prices decreased 0.5$ last month as the cost of petroleum products fell and a strong dollar weighed on prices of motor vehicles and consumer goods. Import prices dropped by an unrevised 1% in December.

Import prices declined 3.1% over the last three months, the biggest three-month decrease since July-October 2015. Economists polled by Reuters had forecast import prices dipping 0.1% in January.

In the 12 months through January, import prices tumbled 1.7%. That was the biggest annual decline since August 2016 and followed a 0.5% drop in December.

Data last week showed consumer prices unchanged in January for a third straight month and producer prices falling for a second consecutive month. The inflation reports support the Fed’s recent description of price pressures as being “muted.” —