U.S. factory output barely rises after tepid gains in prior months

U.S. factory output rose in October by less than expected after downward revisions to prior months, suggesting manufacturing is losing some steam as domestic and global demand moderates.

The 0.1% increase in factory production last month followed a downwardly revised 0.2% advance in September, according to Federal Reserve data released Wednesday.

Including mining and utilities, total industrial output fell 0.1% in October, the second decline in three months.

Manufacturing output was supported by motor vehicles as well as electrical equipment and aerospace transportation.

Excluding autos, factory production stagnated, the weakest print in four months.

Nondurable manufacturing declined for the first time since June, dragged down by petroleum products and textiles.

With concerns brewing about next year’s demand environment as Fed policy makers ratchet up interest rates, the outlook is tenuous for manufacturers.

Still, companies have continued to invest in equipment as they seek to boost productivity to help contain costs amid high inflation.

“Easing supply constraints are a positive for manufacturing,” Rubeela Farooqi, chief US economist at High Frequency Economics, said in a note.

“But factory output faces headwinds from higher interest rates, which will weigh on demand and slow economic activity going forward.”

Higher borrowing costs, which have already taken a toll on home construction, risk diminishing capital spending appetites in other sectors as recession fears mount.

Factory orders may also continue to weaken as many retailers look to reduce an inventory overhang.

“October industrial production figures add to a growing ensemble of data flagging softening core-goods inflation ahead, a plus for Fed officials looking to step down the pace of rate hikes,” economist Andrew Husby wrote in a note for Bloomberg Economics.

The median forecast in a Bloomberg survey of economists called for a 0.2% increase in factory output and a 0.1% rise in industrial production.

Utility output dropped 1.5%, while mining slid 0.4%. Meanwhile, oil and gas well drilling rose 0.8%.

The Fed’s report also showed capacity utilization at factories held at 79.5%, a rate that is 1.3 percentage points above its long-run average, the Fed said.

Separate data out earlier this week underscore producers’ concerns about a weakening in the economy.

The New York Fed’s survey of manufacturers showed a gauge of future business conditions slumped to its second-worst reading since 2001.

New York state manufacturers were also more downbeat on future orders.