US Factory Output Rises as Firms Navigate Supply Constraints
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Production at U.S. factories rose modestly in January, suggesting manufacturers gradually are working through pandemic-related shortages of materials and labor that hobbled output in the prior month.
The 0.2% increase followed a revised 0.1% decline in December, Federal Reserve data showed Feb. 16. Total industrial production, which includes mining and utility output, jumped 1.4% in January, the most in three months, on a surge in heating demand.
The median estimate in a Bloomberg survey of economists called for a 0.2% monthly advance in factory output and a 0.5% increase in total industrial production. Output at utilities surged a record 9.9% in January due to colder-than-usual temperatures, the Fed said.
The figures underscore how strong demand for goods has been key to the nation’s industrial recovery at the same time the sector contends with chip shortages and pandemic-related employee absences. A slight easing in capacity constraints last month also may have helped plants boost output.
“The biggest question facing the industrial sector is how quickly will supply chain and hiring headwinds dissipate,” Oxford Economics’ Oren Klachkin and Kathy Bostjancic said in a note. “Even if the virus disappeared overnight, it would take a while for supply chains to completely heal.”
Factory output last month was mixed. While there were solid gains in machinery and electrical equipment, production of motor vehicles and petroleum products declined. Output of vehicles has been constrained by a scarcity of computer chips throughout the pandemic. Excluding autos, factory output rose 0.3% last month.
Capacity utilization at factories edged up in January to 77.3%, the Fed’s report showed. Total industrial capacity increased to 77.6%, the highest since 2019.
Institute for Supply Management data earlier this month indicated slightly improving delivery times for raw materials and equipment, a sign that capacity constraints may be starting to loosen.
Still, manufacturers continue to face mounting inflationary pressures. A Labor Department report Feb. 15 showed wholesale prices rose 9.7% in January from a year earlier, holding near a record.
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