US manufacturing sector slows as economy slows

WASHINGTON (Reuters) – US manufacturing output fell for a second consecutive month in February and factory activity in the state of New York was weaker than expected this month, providing further evidence of a marked slowdown in economic growth at the beginning of the first quarter.

Reports released on Friday extended the series of weak economic data and highlighted the US Federal Reserve's "patient" stance on further interest rate hikes this year. Fed officials are scheduled to meet next Tuesday and Wednesday to assess the economy and discuss the future direction of monetary policy. The US central bank raised its rates four times last year.

The Fed said its manufacturing output fell 0.4% last month, due to lower production of motor vehicles, machinery and furniture. January data were revised upwards to indicate that factory production fell by 0.5% instead of 0.9%, as previously reported.

Economists polled by Reuters forecast industrial production up 0.3% in February. Factory output rose 1.0% in February from a year ago. The manufacturing sector accounts for about 12% of the economy.

Motor vehicle and parts production fell 0.1% last month after dropping 7.6% in January. Excluding motor vehicles and parts, manufacturing output declined 0.4% last month.

The drop in manufacturing output in February added to weak reports from retail sales to housing, suggesting that the economy lost momentum early in the first quarter. Goldman Sachs expects gross domestic product to grow at an annualized rate of 0.6% in the first quarter. The economy grew at a rate of 2.6% in the fourth quarter.

US financial markets have been little affected by factory data.

Large slowdown

In a separate report released on Friday, the New York Fed said its general conditions index was down 5.1 points from 3.7 in February. That was the third consecutive monthly reading below 10, which, according to the New York Fed, suggested "that growth has stayed a little slower so far this year compared to the bulk of 2018 ".

A reading above zero indicates growth in the manufacturing sector in the region. The new orders index for the survey fell 4.5 points to 3.0 in March. The weakness reported by the New York Fed also suggests that domestic mill activity remained weak this month after slowing sharply in February.

The Supply Management Institute (ISM) announced this month that its measure of domestic manufacturing activity reached its lowest level in two years in February, with a sharp decline in the new orders component.

The manufacturing sector is losing steam while capital expenditures resulting from the $ 1.5 trillion reduction in last year's tax cut are fading. Activity is also hampered by a trade war between the United States and China, as well as by the rise of the dollar last year and the slowdown in global economic growth, which holds back exports.

The decline in manufacturing output last month was offset by gains in utilities and mining, leading to a 0.1% rise in industrial output. Industrial production fell 0.4% in January.

Utilities output rebounded 3.7% last month as cold weather boosted heating demand. Utilities output fell 0.9% the previous month. Mining output rose 0.3% last month, matching January's increase.

Oil and gas well drilling increased 2.8% in February after two consecutive monthly declines.

Capacity utilization for the manufacturing sector, a measure of how companies are using their resources fully, fell to 75.4% last month, its lowest level since May 2018, after 75.8%. % in January.

The overall capacity utilization of the industrial sector increased from 78.3% in January to 78.2%. It is 1.6 percentage points below its 1972-17 average.

Fed officials tend to look at capacity utilization measures to indicate how much "room for maneuver" remains in the economy – up to how much growth can it be fulfilled before becoming inflationary?