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Industrial Output Fall Lowers Odds of US Growth

Industrial Output Fall Lowers Odds of US Growth Industrial Output Fall Lowers Odds of US Growth

The University of Michigan’s preliminary sentiment index for May plunged to 88.6, the lowest since October, from 95.9 the prior month. It was weaker than even the lowest estimate of 68 economists surveyed by Bloomberg. Another report showed factory production stalled in April.

News that the world’s largest economy sputtered last quarter, combined with uneven employment gains, shook households this month, raising concerns that spending will be slow to pick up. A strong dollar and weak oil prices also are holding back manufacturing, further denting the likelihood of a quick rebound in the rate of expansion.

Overall industrial production slid 0.3 percent in April after a drop of the same size in March, the Federal Reserve said Friday. The figures suggest that weakness in manufacturing and mining is weighing heavily on the economy.

 Drilling Plunges

Oil and gas well drilling plunged 14.5 percent last month, its fourth-straight double-digit decline. Last year’s steep decline in oil prices, from about $110 a barrel to $50 in January, has forced energy producers to rapidly scale back operations.

Manufacturing output was unchanged after rising 0.3 percent in March. Utility production fell 1.3 percent, as Americans used less heat but haven’t yet cranked up the air conditioning.

The cutbacks by energy companies likely contributed to a drop in the production of industrial machinery, which fell 0.9 percent, its second-straight decline. The strong dollar also likely held back machinery sales, because it makes goods more expensive overseas. Companies such as Caterpillar are exporting fewer trucks, bulldozers and other industrial machines.

The data “reflects the continued head winds the U.S. manufacturing sector faces from a strong dollar, lower oil prices and softness in international demand,” Jesse Hurwitz, an economist at Barclays, said.

Auto production rose 1.3 percent, a solid increase but down from March’s 4.3 percent gain.

 Adjusting to Challenges

A separate report Friday showed US manufacturers are slowly adjusting to the challenges of a strong dollar and low oil prices.

The Federal Reserve Bank of New York said its Empire State manufacturing index rose to a plus 3.09 reading in May, up from a negative 1.19 reading in April. The index was lifted by the first increase in new orders in four months.

The Empire State index provides an early look at US manufacturing each month, and May’s reading is a sign that manufacturing could be starting to recover.

In the first three months of the year, industrial production fell at a 0.7 percent annual rate, the worst quarterly showing since the second quarter of 2009 when the economy was mired in recession. Manufacturing output also fell 1 percent in the first quarter.

Those factors contributed to a very weak showing for the economy in the first three months of the year, when most analysts expect that it contracted by as much as 1 percent at an annual rate.

 

Financialtribune.com