Manufacturing Sector Shakes of Winter Blues, Economic Prospects Improve
After the weather-induced slowdown experienced in recent months, industrial production rose sharply in February as factory activity strengthened, increases that suggested the economy is once again finding its stride after a difficult winter. In fact, the results were unexpectedly strong; output at at factories, mines, and utilities increased a seasonally adjusted 0.6 percent following January’s 0.3 percent decline, the report from Federal Reserve stated Monday. Plus, factory production rose by the most in six months. “This is going to be the start of the rebound,” TD Securities U.S. strategist Gennadiy Goldberg told Bloomberg before the report. “Pent-up demand should start to drive things as we get further into the spring.”
January’s decline — the largest drop recorded since 2009 — followed a strong last quarter for the manufacturing sector. Through 2013, the focus was on the American consumer and the affect consumer spending — or lack there of — would have on the American economic recovery. But there was increasing evidence that the manufacturing sector was helping the economic recovery find its legs as well. Throughout the final three months of the past year, industrial output increased at 6.8 percent annual rate, making the quarter the strongest since the April through June period of 2010. But January’s unusually cold weather caused some mining operations to slow and put the brakes on factory output, as snowstorms in the eastern part of the country prevented some plants from receiving parts and materials — although utility consumption did increase thanks to the frigid temperatures. While Capital Economics senior U.S. economist Paul Dales noted at the time that manufacturing output typically recovers quickly from temporary factors, he cautioned that, “With the weather having been just as severe in February … this may not happen until March.”
But with February’s report, it appears that the manufacturing sector was in better shape going into March than previously expected. Of course, stronger demand from consumers and companies will further help strengthen the manufacturing sector, where companies are faced with built-up inventories. Factory stockpiles rose consistently last year because production outstripped demand. By January, inventories of durable goods — or manufactured products expected to last three years or longer — hit a record level. When too many goods pile up, manufacturing companies typically lower output, meaning the consumption of goods, a gauge of consumer and business spending, is essential to a recovery in manufacturing.