Snowstorms curb industrial output, rebound seen

WASHINGTON Mon Mar 15, 2010 4:34pm EDT

A VDOT (Virginia Department of Transportation) snow plow clears snow after a heavy snowstorm in Great Falls, Virginia February 6, 2010. REUTERS/Hyungwon Kang

A VDOT (Virginia Department of Transportation) snow plow clears snow after a heavy snowstorm in Great Falls, Virginia February 6, 2010.

Credit: Reuters/Hyungwon Kang

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WASHINGTON (Reuters) - U.S. industrial production braked sharply in February, held back by severe winter storms that slammed parts of the country, while manufacturing activity in New York state stalled this month.

Analysts said Monday's data did not alter their views that the factory-led economic recovery remained on track, given weather disruptions and the fact details of the reports showed underlying strength. They expect a rebound in industrial production in March.

The reports came ahead of a Federal Reserve meeting on interest rates on Tuesday. The U.S. central bank is expected to hold overnight interest rates in a range of zero to 0.25 percent and maintain a pledge to keep them ultra-low for an "extended period" to nurture the recovery.

While U.S. manufacturing output fell in February, it rose outside of the auto sector, and mining activity posted a strong gain, leading overall industrial output to rise slightly. In addition, factory employment, shipments and unfilled orders in New York state all rose this month.

"The two reports were positive for the economy and they do indicate that the factory sector will make a positive contribution to growth in the first quarter," said Kenneth Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

The Federal Reserve said industrial output edged up 0.1 percent last month after increasing 0.9 percent in January, in line with market expectations. They blamed the slowdown on inclement weather. The report also showed the amount of the nation's industrial capacity in use hit the highest level in more than a year.

Although February's snowstorms affected industrial output, they had a minimal effect on activities like retail sales as people whose shopping had been impacted or delayed headed to the malls after the blizzards.

Separately, the New York Fed said its March gauge of manufacturing activity in New York state slipped to 22.86 from 24.91 in February. Markets had expected the measure to fall to 22.00.

Lingering worries over possible monetary tightening in China that could hamper the global economic recovery overshadowed the positive aspects of the reports, leaving U.S. stock indexes mixed at close. U.S. government bond prices were flat, while the dollar rose against a basket of currencies.

Manufacturing has led the economy out of the most severe downturn since the 1930s. But there are indications that consumers -- the main engine of the economy -- are starting to participate in the recovery as the labor market improves.

Still, major headwinds remain that could frustrate the recovery. Home builders sentiment fell unexpectedly this month, hit by lack of credit for new projects and a flood of foreclosed properties, the National Association of Home Builders said.

EMPLOYMENT MEASURE SOARS

While manufacturing activity in New York state slowed this month, the report's employment index rose to its highest level since October 2007 and the inventories measure jumped above zero for the first time in more than a year.

Even more heartening, new orders and shipments soared from the prior month, while the average workweek lengthened markedly and the backlog of orders grew.

"You're seeing a clear evidence of a V-shaped recovery in the manufacturing sector, partly because it shrank so rapidly during the recession but also, there's a lot of positive fundamentals," said Zach Pandl, an economist at Nomura Securities International in New York.

In addition to inclement weather, industrial production last month was curbed by a steep drop in motor vehicle output -- likely a reflection of the auto recalls by Toyota Motor Corp that depressed demand for cars. Manufacturing dipped 0.2 percent after growing 0.9 percent in January.

Stripping out vehicle assembly, manufacturing rose 0.1 percent.

"We believe the fundamentals are strong for continued manufacturing recovery driven by pent-up consumer demand, repair and replacement of business equipment, and exports," said Daniel Meckstroth, chief economist at Manufacturers Alliance/MAPI in Arlington, Virginia.

"The minor setback in February is expected to be followed by strong makeup gains in March."

Mining increased 2.0 percent, adding to the 1.1 percent rise in January, while utilities gained 0.5 percent after a 0.6 percent rise.

Capacity utilization, a measure of slack in the economy, inched up to 72.7 percent, the highest since December 2008, from 72.5 percent in January. That was still 7.9 percentage points below the average from 1972 to 2009, the Fed said.

A third report from the Treasury Department showed foreign investors sold a net $33.4 billion of all U.S. securities in January but remained net buyers of U.S. Treasury debt.

(Additional reporting by Wanfeng Zhou and Steven C Johnson in New York; Editing by Andrew Hay)

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Comments (4)
ghendric wrote:
Yeah, sure it did.. probably the first time in recorded history…

Mar 15, 2010 11:44am EDT  --  Report as abuse
STORY-BURN wrote:
Soaring exports are leading to US manufacturing rebounding and we better be careful not to tick off China any more than we have. We need them. Snow or no snow. Manufacturers are feeling much better than a year ago

Mar 15, 2010 12:33pm EDT  --  Report as abuse
paulflorez wrote:
I doubt that China is the one buying our exports (post link to reliable source if you know otherwise, I’d appreciate it). If anyone is buying our exports, it’s Europe. Since the Euro is so much more valuable than the dollar, European labor is much more expensive than U.S. labor. For the last couple of years, I’ve read stories about European manufacturers moving their operations to the U.S. because the labor is cheaper, and then they export the goods back to Europe.

The worst than China can do to us is stop buying U.S. debt, but they have a fairly large stake in the U.S. dollar and if the dollar took a drastic drop, it would hurt them as well.

The best thing the U.S. can do is get the economy revving again and at that point, run a huge surplus to quickly pay down the debt while pushing China to stop unfair trade practices like artificially devaluing their currency, which helps make their labor so cheap that its hard for manufacturers to resist outsourcing from the U.S. to China. The fastest way for the U.S. to pay off its debt is a combination of tax increases and spending cuts, a double whammy that increases the amount of revenue available to the government to pay down that debt.

The next time we have a recession/depression, we must have $0 in debt so that we can borrow to help spur a recovery. The $10 trillion in debt we had when we got into this recession has made it a lot harder and much more expensive to get out of it. If we had $0 debt when we got into this recession, I guarantee you we would have been able to secure a much faster recovery.

Thankfully, it appears production is rising and unemployment has bottomed out and is ready to start dropping, so we probably have dodged a bullet this time around. Next time, we might not be so lucky.

Oh, and regulating the financial sector would do a whole lot of good. The last 8 years or so has proven that private businesses that unfortunately irresponsibly play around with tens of trillions of Americans’ dollars need a babysitter.

Mar 15, 2010 2:15pm EDT  --  Report as abuse
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