The output of U.S. factories fell in November, suggesting that weaker global demand and tighter financial conditions have become a drag on the manufacturing sector.
Factory production dropped by 0.6 percent in November after climbing an upwardly revised 0.3 percent in October. Economists had forecast a milder decline of 0.1 percent.
For months now, survey data from regional Federal Reserve banks, the Institute of Supply Management, and S&P Global have suggested a softening in the manufacturing sector. As well, consumer demand for manufactured goods appears to have declined form the pandemic heights and inflation weakened. Until now, however, so-called hard data on factory orders and factory production have remained resilient.
The decline was not just worse than expected, it was twice as large as the bottom estimates of forecasters surveyed by Econoday. Those estimates ranged from a gain of 0.2 percent to a decline of 0.3 percent.
The decline was widespread. Both durable and nondurable goods output fell by 0.6 percent. There was a sharp decline in motor vehicle production, likely reflecting increased financing costs for purchases of cars and trucks. The production of consumer goods declined 0.4 percent.
Business goods production fell by 0.8 percent, suggesting that businesses are pulling back from capital spending as financing costs rise and an economic downturn looms in the year ahead.
Construction-related output fell 0.2 percent. While most parts of the industrial economy are producing more than they were a year ago, construction is down 0.7 percent from last November. The housing market is the most interest rate-sensitive sector of the economy and has been hit hard by Federal Reserve tightening.
Including mining and utilities, total industrial output fell 0.2 percent in November. Economists had expected a 0.1 percent uptick.
In separate reports released Thursday, the Federal Reserve Banks of Philadelphia and New York said survey data suggested a further weakening of manufacturing in December in their regions.
Capacity utilization at factories declined to 78.9 percent last month, the lowest since June.
Consumers have been switching from spending on goods to services, in part restoring a more normal pattern of household expenditures. This has left some retailers with excess inventories, forcing them to order fewer goods and slash prices. That can help reduce inflation, at least in the short term, but it also weighs on economic growth. In a separate report released Thursday, the Commerce Department said business inventories rose by less than expected in October.