Factory output drops 0.4 percent in August

Seasonal adjustment problem seen as cause of slight decline

By Martin Crutsinger
AP Economics Writer
WASHINGTON (AP) — U.S. manufacturing output declined in August for the first time in seven months, reflecting a sharp fall in production at auto plants that was due mainly to seasonal adjustment problems.
Output at manufacturing plants fell 0.4 percent in August after a 0.7 percent rise in July, the Federal Reserve reported Monday. Total industrial production was down 0.1 percent in August, also the first setback for the overall figure since January. Output was up in mining and utility production but these gains were not enough to offset the decline in manufacturing.

Output of motor vehicles and parts dropped 7.6 percent after a 9.3 percent increase in July. The reversal was not viewed as worrisome. The July figure was boosted because many plants did not shut down as they normally do to retool for new models. That made August look weaker.

Economists had been looking for a weaker figure for factory output in August as auto activity returned to more normal levels. The fact that there were fewer plant shutdowns in July made output look stronger after the government adjusted the figure for normal seasonal variations. And that seasonal adjustment then made the August figures look weaker.

Outside of manufacturing, output at utilities rose 1 percent after a big 2.7 percent drop in July which reflected cooler-than-normal temperatures that month. Output in mining, a category that includes oil and gas production, rose 0.5 percent in August after a 0.3 percent drop in July.

Paul Dales, senior U.S. economist at Capital Economics, said he was not overly concerned by the dip in industrial production because it reflected a temporary seasonal adjustment problem. He said gains in a number of industries outside of autos “underlines that industry remains healthy.”

A broad increase in manufacturing this year has pointed to stronger growth across the economy, suggesting that manufacturers expect business investment and consumer spending to improve in the coming months.