Decline in US factory production reflects weaker global demand and high borrowing costs

Factory production fell 0.6% last month, followed by an upwardly revised 0.3% rise in October, according to Federal Reserve data released on Thursday. The number missed all estimates in a Bloomberg poll of economists.

Including mining and utilities, total industrial production fell 0.2% in November compared to a flat forecast.

Manufacturing output was hit by both durable and durable goods, including automobiles and parts, and plastic and rubber products. Aside from cars, factory production was still at its lowest level in six months.

Manufacturers are grappling with weaker demand, driven by changing consumption patterns and amplified by higher interest rates. The sector contracted in November for the first time since the pandemic began, according to the Institute for Supply Management, as orders continued to contract and companies braced for lower future production.

Separate data released Thursday by regional Federal Reserve banks showed that output in both the New York and Philadelphia regions weakened more than expected. The latter’s order intake fell to its lowest level since the pandemic began.

utility output

Utilities output rose 3.6%, the highest since January on higher electricity consumption, while mining declined. Oil and gas drilling fell 0.7%, the sharpest drop since July 2020.

The Fed’s report also showed that factory capacity utilization fell to 78.9% last month, its lowest level since June.

Inventory levels were also too high, prompting many retailers to offer deep discounts during the holiday shopping season. Separate data earlier this week showed that 4% of US small businesses plan to reduce inventories over the next three to six months, the most since April 2020.

Other metrics still point to robust demand. Business equipment orders placed at US factories rebounded sharply in October, according to the latest government data.