U.S. Factory Output Falls on Slowdown in Consumer Spending

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U.S. factories slowed production in January, bringing to an end two months of decent output.

Manufacturing output fell 0.4 percent in January from December, the Federal Reserve said Friday. The decline followed increases of 1.1 percent in December and 1.7 percent in November.

Overall industrial production edged down 0.1 percent in January compared with December. Output In mining, the category that covers oil and gas drilling, fell 1 percent. Utility output jumped 3.5 percent, as a cold snap led more households to turn up their heat.

Factory output, the most important component of industrial production, was dragged lower by a steep 3.2 percent decline in auto and auto parts production. The auto industry is coming off its best year for sales in five years, one of the few bright spots in an otherwise bleak manufacturing sector.

Many factories outside the auto industry have been hurt by a slowdown in consumer spending and weaker global growth that has dampened demand for U.S. exports.

Economists expect healthier output in 2013, partly because they’re praying U.S. companies use their cash reserves to invest in new equipment and machinery.

U.S. Factory Output Falls on Slowdown in Consumer Spending

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A second report Friday showed that manufacturing activity in the New York area posted a big gain in February. The New York Federal Reserve’s Empire State survey rose to 10.04 in February, compared with a negative 7.78 in January. It was the biggest one-month improvement in this index in more than two years.

Slower growth in stockpiles was a key reason the economy shrank at an annual rate of 0.1 percent in the October-December quarter, the first contraction in 3 1/2 years. Deep cuts in defense spending and fewer exports also contributed to the decline.

Obviously, a better job market could boost consumer spending, leading to faster U.S. growth. Employers added 157,000 jobs in January and an average of 200,000 jobs a month since November. But that’s not nearly enough to push the unemployment rate lower.

Also, Americans are seeing smaller paychecks this year because of an increase in Social Security taxes, which could offset any benefits from stronger hiring.

So, yeah, there’s your consumer spending issue.

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The AP contributed to this report.