Factory production increased 0.2 per cent in January after a flat reading in December, the Federal Reserve said Wednesday. December's reading was revised down from a 0.3 per cent gain. The data suggests manufacturing is still supporting the economy, even though it is growing at a weaker pace than last year.
Strong hiring has given Americans more money to spend, which has boosted demand for cars, electronics and other manufactured goods. That is countering the impact of weak growth overseas, which has dragged down U.S. factories' exports.
Auto production fell 0.6 per cent last month, lowering overall manufacturing output. Auto output has fallen after spiking higher in November. The decline is likely temporary, however, as car sales remain strong. New car sales surged 14 per cent in January from a year earlier, according to Autodata.
Overall industrial production, which includes mining and utilities, also increased 0.2 per cent in January after slipping 0.3 per cent in December. Utility output rose 2.3 per cent as heating demand increased. Mining production fell 1 per cent due to a huge 10 per cent drop in new oil and gas drilling.
"Sluggish global growth and a stronger dollar may weigh on U.S. exports and industrial activity in coming months," Greg Daco, an economist at Oxford Economics said. "But domestic fundamentals look strong and should provide offsets."
Oil prices have fallen by about half since last summer. That has caused drilling companies to hold off on digging new wells and has limited oil and gas extraction, which is included in mining output.
Greater U.S. consumer spending is barely offsetting the impact of weakness overseas. Spending grew in the final three months of last year at the fastest pace in nine years. Yet retail sales were weak in December and January as consumers have yet to spend their savings from lower gas prices.
Growth in the 19 European countries that share a common currency is sluggish. Japan has just exited recession. And China's economy is growing at a slower pace than it has historically. U.S. exports fell in December, increasing the trade gap to its widest level in more than two years.
In addition, the rising value of the dollar against other currencies makes U.S. products more expensive abroad. All of those hurdles mean U.S. manufacturers are relying on domestic demand for growth.
Other recent data also suggests manufacturing is growing, but at a sluggish pace.
A survey earlier this month by the Institute for Supply Management, a trade group of purchasing managers, found that factories nationwide expanded in January, but at the slowest pace in a year. New orders, production and hiring all weakened from the previous month.
Companies are also investing less in heavy equipment. A separate report from the Commerce Department this month showed that orders received by U.S. factories have fallen for five straight months. Orders for machinery, industrial equipment and other big-ticket items — a category that is a proxy for businesses' investment plans — fell for the fourth straight month in December.