U.S. manufacturing production rises solidly despite semiconductor shortage

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An employee works at the Kirsh Foundry in Beaver Dam, Wisconsin, U.S., April 12, 2018. Picture taken April 12, 2018. REUTERS/Timothy Aeppel

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WASHINGTON, Feb 17 (Reuters) - Output at U.S. factories increased more than expected in January even as a shortage of semiconductors weighed on the production of motor vehicles, pointing to resilience in the manufacturing sector recovery.

Manufacturing production rose 1.0% last month after gaining 0.9% in December, the Federal Reserve said on Wednesday. That was the ninth straight monthly advance in factory production.

Economists polled by Reuters had forecast manufacturing output increasing 0.7% in January. Manufacturing, which accounts for 11.9% of the U.S. economy, has powered ahead as the pandemic left Americans grounded at home, shifting demand to household goods from services like airline travel and hotel accommodation.

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Manufacturing momentum could slow in the spring as the distribution of vaccines reaches large swathes of the population, helping to slow the spread of the virus. That could unleash pent-up demand for travel.

Still, production at factories will be supported by low customer inventories, as well as lean stocks at manufacturers. A survey this month showed a dip in manufacturing sentiment in January. read more

The Fed report showed motor vehicles and parts output declined 0.7% in January. Production at auto plants has been hampered by a shortage of semiconductors. Motor vehicle production slipped 0.2% in December. Excluding autos, manufacturing output increased 1.0%.

The strength in manufacturing output combined with 2.3% jump in mining to lift industrial production by 0.9% in January. That followed a 1.3% surge in December. Industrial production remains below its pre-pandemic level. Utilities output fell 1.2%.

Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose 0.7 percentage point to 74.6% in January. Overall capacity use for the industrial sector increased 0.7 percentage points to 75.6%. It is 4.0 percentage points below its 1972-2019 average.

Officials at the Fed tend to look at capacity use measures for signals of how much "slack" remains in the economy — how far growth has room to run before it becomes inflationary.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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