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February 15, 2019 12:45 PM, EST

Manufacturing Takes Downward Turn in January

Manufacturing Meg Roussos/Bloomberg News

U.S. factory production unexpectedly contracted in January, shrinking the most in eight months on weakness in the automotive sector and indicating a weak start to the year as headwinds including a trade war with China weighed on factories.

Manufacturing output fell 0.9% after a downwardly revised 0.8% increase in the prior month, Federal Reserve data showed Feb. 15. The results missed the Bloomberg survey median forecast calling for an unchanged reading. Total industrial production, which also includes mines and utilities, contracted 0.6% after a revised 0.1% rise that was also revised down.

The data point to cooling across the manufacturing sector, consistent with analyst forecasts for a broader moderation in the U.S. economy this year. The trade war with China is putting some investment on hold and raising costs for factories, potentially overshadowing wage gains and a strong labor market. The drop-off was driven by an 8.8% decline in motor vehicles and parts, with assemblies falling from the best pace in more than two years to the weakest reading since May.

Most industries were little changed while information processing, construction supplies and defense equipment posted losses. The report contrasts with the Institute for Supply Management’s survey showing measures of new orders and production snapped back in January after steep declines the prior month.