With a rise in temperature, there was a higher than anticipated boost in manufacturing in U.S. factories in February. However, high rates of interest still constrains manufacturing resulting in a sharp downwards revision of the manufacturing data for the prior month.

Since March 2022, the Federal Reserve has raised interest rates by 525 basis points, which has put pressure on manufacturing, which makes up 10.3% of the economy. After a two-day policy meeting, the U.S. central bank is anticipated to keep rates unchanged on Wednesday. The financial markets believe that in June, rate reductions will begin.

“The manufacturing sector continues to face headwinds from higher borrowing costs and tighter credit conditions,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “However, lower interest rates as the Fed starts cutting the target range this year, as well as an onshoring of supply networks may provide support to factory activity in 2024.”

According to the Fed, manufacturing production increased 0.8% in the previous month following a downwardly revised 1.1% decline in the previous one. Due to the extremely cold conditions, factory output was earlier estimated to have decreased by 0.5% in January.

According to Reuters polled economists, manufacturing production would increase by 0.3%. In February, factory production decreased 0.7% compared to the same month last year. Although the industrial sector is generally sluggish, there are still areas of strength.

The U.S. central bank’s data revealed that last month’s output of motor vehicles and parts increased by 1.8%. That came after a weather-related 3.8% decrease in January.

Production of durable goods grew by 1.0%. The output of machinery increased 1.7%. Along with other miscellaneous commodities, there were also significant increases in the manufacture of wood products.

The production of electrical appliances, components, and computer and electronic goods all increased at the same time.

Investment in businesses is encouraged by this. The output categories for chemicals, printing and support, and paper contributed to a 0.7% increase in the production of nondurable items.

Additionally, the mild weather helped to increase mining output, which increased 2.2% after falling 2.9% in January. But for the fourth consecutive month, drilling for oil and gas wells decreased. It decreased 10.1% from the previous year.

Production of utilities decreased by 7.5% as demand for heating declined. That came after an increase of 7.4% in January.

After declining by 0.5% in January, the total industrial production increased by 0.1% in February. In February, industrial production decreased 0.2% from the previous year.

The industrial sector’s capacity utilisation rate, which gauges how well businesses utilise their resources, remained constant at 78.3%. Its average for the years 1972–2023 is 1.3 percentage points lower.

The manufacturing sector’s operating rate increased to 77.0%, a six-tenth of a percentage point increase. Its long-run average is 1.2 percentage points higher.

Wall Street stocks were trading at a lower level. The dollar’s value relative to a currency basket remained relatively stable. US Treasury yields were not all the same.

There was conflicting news regarding inflation. Although import prices increased somewhat in February following a sharp increase in January, the disinflationary trend as a whole is moderating. A large portion of last year’s inflation decrease was caused by declining goods prices.

After rising by 0.8% in January, import prices increased by 0.3% last month, according to data from the Labour Department’s Bureau of Labour Statistics. When tariffs are taken out of the equation, the rise in import prices is consistent with economist predictions.

After falling 1.3% in January, import prices fell 0.8% in the 12 months ending in February. Despite a decline in annual import prices for the thirteenth consecutive month, the rate of decline has slowed since prices fell 2.4% in December. This week’s government data revealed that in February, producer and consumer prices rose sharply for the second straight month.

“While import prices continue to exert modest disinflationary pressure on U.S. consumer inflation, that pressure is waning,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

February saw a sharp 1.8% increase in imported fuel prices following a 1.2% increase the month before. Food imports went up 1.1% in January following a 1.7% increase in January.

With food and energy excluded, import prices increased by 0.1%. In January, these so-called core import prices rose by 0.7%. On an annual basis, they decreased by 0.7% in February.

Economists had predicted that the personal consumption expenditures (PCE) price index—which excludes food and energy—would rise by 0.3% in February following a 0.4% gain in January. The import price data did not alter their predictions.

One of the inflation indicators that the Fed monitors in order to reach its 2% target is the core PCE price index. It is predicted that core inflation would increase by 2.8% in February, matching the increase in January.

A University of Michigan survey revealed that consumers projected inflation to stay stable at higher levels for the upcoming year and beyond.

The March reading of one-year inflation forecasts from the University of Michigan poll remained at 3.0%. For the fourth consecutive month, the five-year inflation forecast remained stable at 2.9%. This month, consumer mood remained steady as well.

“Consumers may instead be taking their cue from recent political developments, with the low approval ratings of both candidates suggesting little enthusiasm about the rematch between President Joe Biden and Republican nominee Donald Trump later this year,” said Stephen Brown, deputy chief North America economist at Capital Economics.

(Adapted from RTE.ie)

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