US manufacturing output rises, outlook for factories weak

By Lucia Mutikani

WASHINGTON (Reuters) -Production at U.S. factories rose in November, lifted by a rebound in motor vehicle output following the end of strikes, but activity was weaker elsewhere as manufacturing grapples with higher borrowing and softening demand for goods.

Manufacturing output rose 0.3% in November, the Federal Reserve said on Friday. Data for October was revised lower to show production at factories falling 0.8% instead of by the previously reported 0.7%. Economists polled by Reuters had forecast factory output would rebound 0.4%. Excluding motor vehicles and parts, manufacturing production slipped 0.2% last month.

“Manufacturing continues to limp along and is unlikely to provide the fuel for economic growth in the near term,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Manufacturing, which accounts for 11.1% of the economy, continues to be hamstrung by higher interest rates. Despite an easing in financial conditions and prospects of rate cuts next year, a rapid improvement in factory output is not expected amid signs that businesses are throttling back on inventory accumulation in anticipation of softer demand.

A survey from the Institute for Supply Management this month found that manufacturers viewed customer inventories as having increased “toward the upper end of ‘about-right’ territory” in November. The ISM’s manufacturing PMI has remained in contraction territory for 13 straight months, the longest such stretch since the August 2000-January 2002 period.

The Federal Reserve held interest rates steady on Wednesday and signaled in new economic projections that the historic tightening of monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.

The lackluster outlook for manufacturing was reinforced on Friday by the New York Fed’s Empire State survey, which showed factory activity in the region sinking deeper into recession in December. The survey’s general business conditions plunged 24 points to -14.5 this month, with new orders and employment measures stuck in negative territory.

Manufacturers in the region were not overly optimistic that business conditions would improve over the next six months. Sentiment surveys, such as the ISM and Empire State, however, likely overstate the weakness in manufacturing.

AUTO SECTOR REBOUND

The Fed report showed production at factories decreased 0.8% on a year-on-year basis in November.

Motor vehicle and parts output rebounded 7.1% last month, recouping the bulk of the 9.9% decline in October, after the end of the United Auto Workers strikes against Detroit’s “Big Three” automakers.

There were solid increases in production of computer and electronic products as well as aerospace and miscellaneous transportation equipment, which, together with output of motor vehicles and parts, helped boost durable manufacturing by 1.2%.

But output of wood products declined. Production of nondurable goods dropped 0.5% amid steep declines in the output of textiles as well as apparel and leather.

Mining output rose 0.3% after falling 1.1% in October. Utilities production slipped 0.4% following a 1.4% plunge in the prior month. Overall industrial production was up 0.2% in November after decreasing 0.9% in October.

Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, edged up one-tenth of a percentage point to 78.8% in November. It is now nine-tenths of a percentage point below its 1972–2022 average.

The operating rate for the manufacturing sector rose to 77.2% from 77.0% in the prior month and is 1.0 percentage point below its long-run average.

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