US industrial output rises slightly as hurricanes impact lingers

Washington: Industrial production in US rebounded modestly in September as the lingering effects of Hurricanes Harvey and Irma hobbled activity at factories, but the outlook for the industrial sector remains bullish amid a strengthening global economy and weakening dollar.
The soft industrial production data was offset by another report on Tuesday showing import prices posting their biggest gain in 15 months in September, and steadily rising underlying imported inflation.
The Federal Reserve said industrial production increased 0.3 per cent last month after a 0.7 per cent drop in August that was smaller than initially reported. The US central bank said the "continued effects of Hurricane Harvey and, to a lesser degree, the effects of Hurricane Irma combined to hold down the growth in total production in September by a quarter percentage point."
"We will likely see solid growth in the industrial production data in the fourth quarter as production bounces back following the storm-related disruptions," said Daniel Silver, an economist at JPMorgan in New York.
Last month's rise was in line with economists' expectations. Industrial production was previously reported to have declined 0.9 per cent in August. The Fed also revised data for July to show industrial output slipping 0.1 per cent instead of the previously reported 0.4 per cent increase.
Industrial output fell at an annual rate of 1.5 per cent in the third quarter. Excluding the effects of the hurricanes, industrial production would have increased at an annual rate of at least 0.5 per cent, the Fed said.
Manufacturing output edged up 0.1 per cent in September after dropping 0.2 per cent August. Manufacturing production was restrained by a 2.6 per cent plunge in the production of non-durable chemical products, which was likely related to Harvey.
Motor vehicle and parts production nudged up 0.1 per cent last month. Manufacturing output declined at a 2.2 per cent rate in the third quarter.
Despite the hurricane-related setback, manufacturing, which accounts for about 12 per cent of the US economy, remains on solid ground amid a weakening dollar, firming global economy and inventory accumulation by businesses.
Factory sentiment is also at multi-year highs. In September, mining production rose 0.4 per cent, reflecting gains in oil and gas extraction. Utilities production rose 1.5 per cent last month. With output tepid last month, industrial capacity use rose 0.2 percentage point to 76.0 per cent, and is 3.9 percentage points below its long-run average.
Excess slack
Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.
"This excess slack could be an impediment to the Fed's elusive 2.0 per cent inflation target," said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
The dollar rose against a basket of currencies as investors focused on the Labor Department report showing a 0.7 per cent jump in import prices in September. Prices for US Treasuries fell marginally, while stocks on Wall Street were little changed.
Last month's increase in import prices was the biggest since June 2016 and followed a 0.6 per cent rise in August. In the 12 months through September, import prices climbed 2.7 per cent after advancing 2.1 per cent in August.
Last month, prices for imported petroleum increased 4.5 per cent after rising 5.0 per cent in August. Food prices surged 1.8 per cent, the largest gain since July 2016, after edging up 0.2 per cent in August.
Import prices excluding petroleum rose 0.3 per cent after a similar gain in August, likely as some of the effects of the dollar's more than 6 per cent depreciation against the currencies of the United States' main trading partners this year start to filter through.
Import prices excluding petroleum increased 1.2 per cent in the 12 months through September.
"There is a hint in this report that the weakening in the dollar over the last year is beginning to feed into underlying prices," said John Ryding, chief economist at RDQ Economics in New York. "The decline in the dollar picked up pace from May to September and we think this will show through into core import prices."
The cost of imported goods from China was unchanged in September after slipping 0.1 per cent in August. Prices for imports from China fell 0.7 per cent on a year-on-year basis, the smallest year-on-year decline since April 2015.