U.S. Factory Output Declines as Harvey Hits Refining, Chemicals

• U.S. Factory Output Declines as Harvey Hits Refining, Chemicals

U.S. factory output declined in August as Hurricane Harvey curtailed oil refining and chemical production, a Federal Reserve report showed Friday.

Highlights of Industrial Production (August)

• Factory output fell 0.3% m/m (est. 0.3% gain) after an upwardly revised 0.4% increase
• Total industrial production, which also includes mines and utilities, decreased 0.9% m/m (est. 0.1% rise) after no change, revised from a 0.1% drop
• Harvey reduced rate of change in factory output and industrial production each by about 0.75 percentage point, Fed says
• Capacity utilization, measuring the amount of a plant that is in use, fell to 76.1% (est. 76.7%) from 76.9%

Key Takeaways

The report showed manufacturing may have increased without the effects of Harvey, which struck the Gulf Coast of Texas in late August. The Fed issued a technical note saying it made some assumptions about output in affected areas when actual data weren’t available, using procedures similar to previous major weather events.

Output got a boost from automobile production, which rose 2.2 percent, the first increase in four months. Vehicle demand has been cooling since the start of the year, and the Fed report compares with industry figures showing August sales of cars and light trucks posted the weakest annualized pace since early 2014, in part reflecting the hit from Hurricane Harvey.

Manufacturers are likely to see delays in supplier deliveries, a shortage of some inputs, and higher costs for materials in the aftermath of Harvey and Irma, economists have said. At the same time, history shows that economic activity that’s initially subdued due to major storms tends to get a lift later amid rebuilding.

Outside of hurricane-related volatility, manufacturing is expected to keep expanding, though an acceleration is unlikely without bigger gains in household demand and business investment. An improvement in overseas markets may boost production linked to exports, while a pickup in energy prices would also help producers.

The Institute for Supply Management’s manufacturing index released earlier this month showed factories ramped up in August to the fastest pace of expansion in six years, with gains in backlogs signaling assembly lines will keep humming in coming months.

Other Details

• Utility output fell 5.5 percent after rising 1.5 percent the prior month
• Excluding autos and parts, manufacturing output fell 0.5 percent
• Mining production fell 0.8 percent; with oil and gas well drilling dropping 4.8 percent
• Production of consumer goods fell 0.7 percent; output of business equipment dropped 0.4 percent
• Machinery production fell 1.4 percent