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U.S. manufacturing production increases; headwinds growing

WASHINGTON (Reuters) – U.S. manufacturing output rose for a fifth straight month in October, shrugging off a sharp drop in…

WASHINGTON (Reuters) – U.S. manufacturing output rose for a fifth straight month in October, shrugging off a sharp drop in motor vehicle production and suggesting underlying strength in factory activity despite growing headwinds that are expected to slow the sector in 2019.

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1; Assembly workers work on The underside of 2015 Ford Mustang vehicles on the production line at the Ford Motor Flat Rock Assembly Plant in Flat Rock, Michigan, August 20, 2015. REUTERS / Rebecca Cook

The Federal Reserve said Friday production production rose 0.3 percent last month . Data for September was revised up to show output at factories increasing 0.3 percent instead of advancing 0.2 percent as previously reported.

Economists polled by Reuters, forecast manufacturing output had risen 0.2 percent in October. Manufacturing, which accounts for more than 12 percent of the economy, is expected to slow down next year in part as the stimulus from the Trump’s administration’s $ 1.5 trillion tax cut package fades.

Manufacturing surveys have suggested a moderation in factory activity in the absence of labor shortages as well as more expensive raw materials caused by the White House’s protectionist trade policy.

A strong dollar, which has gained about 8.1 percent this year against the currencies of the United States’ main trade partners, is also hurting exports, and there are signs of slowing growth in other economies, including China.

“The manufacturing sector is still coping fairly well with the dollar’s recent appreciation and the slowdown in global growth,” said Andrew Hunter, a U.S. economist at Capital Economics in London.

“But the recent weakening in the global manufacturing PMIs, especially in China, suggests that the current strength of the manufacturing sector is unlikely to be sustained,” Hunter said, referring to purchasing managers’ indexes.

U.S. Financiële markten waren weinig verplaatst door de data, met traders gericht op zorgen over een vertragende globale economie. The dollar .DXY fell against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading lower.

AUTO PRODUCTION SLUMPS

Motor vehicle production slumped 2.8 percent in October after rising 1.3 percent in September. Economists blamed the drop on U.S. Tariff on imported steel and aluminum, and warned or further harm to production if the duties were not scrapped.

“While automakers have successfully countered industry headwinds, such as tighter bank lending for autos, U.S. import tariffs on steel and aluminum continue to pose downside risks due to late-cycle demand fatigue, “said Stephen Ciccarella, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Excluding motor vehicles and parts, manufacturing gained a solid 0.5 percent last month, boosted by a strong increase in the output of business equipment. That followed a 0.2 percent rise in September.

Business equipment production increased 0.8 percent, matching September’s rise. De sterke gevaren geven een terugval in bedrijfsmiddeluitrusting in het vierde kwartaal na het stalled in de juli-september periode.

October’s rise in manufacturing production offset decreases in mining and utilities output, leading to a 0.1 percent gain in industrial production last month. Industrial output rose 0.2 percent in September.

The Fed said Hurricanes Florence and Michael had lowered the level of industrial production in both September and October, but the effects of the storms “appear to be less than 0.1 percent per month.”

Mining output fell 0.3 percent October after slipping 0.1 percent in September. Oil and gas well drilling rebounded 1.6 percent after declining for three straight months. Med oljepriser faldt til en lavmåneders lav på tirsdag, økonomier forventer minproduktion å forbli svag.

“Given the steep decline in oil prices since early October, these decreases in mining activity are likely to accumulate momentum in the coming months,” said Jonathan Millar, an economist at Barclays in New York.

Utilities output dropped 0.5 percent in October after dipping 0.1 percent in the previous month.

Capacity utilization for the manufacturing sector, a measure of how fully companies are using their resources, rose to 76.2 percent in October, the highest since July 2015, from 76.1 percent in September.

Overall capacity utilization for the industrial sector fell to 78.4 percent from 78.5 in September. It is 1.4 percentage points below its 1972-to-2017 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.

Reporting by Lucia Mutikani; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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