Industrial production in the U.S. unexpectedly fell in August by the most since March 2009, highlighting risks to the economic outlook a day after the Federal Reserve boosted record stimulus.
The 1.2 percent decrease at factories, mines and utilities followed a revised 0.5 percent gain in the prior month, figures from the Fed showed today. The median estimate in a Bloomberg survey of 81 economists called for no change. Another report showed purchases cooled at retailers excluding auto dealers and gasoline service stations.
A global economic slowdown is restraining demand for U.S. exports, making it harder for companies like Texas Instruments Inc. (TXN:US) and Dow Chemical Co. (DOW:US) to expand sales. Manufacturers are also challenged by the prospect of budget cuts and tax increases set to take effect at the end of the year and consumer spending that’s hampered by 8 percent unemployment.
“Manufacturing is losing momentum,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Exports will weaken further, and the consumer is in a very tough position. The economy isn’t going anywhere.”
Demand for riskier assets after yesterday’s announcement that the Fed would buy mortgage securities sparked a global rally in stocks and commodities.
The Standard & Poor’s 500 Index climbed 0.4 percent to 1,465.77 at the close in New York, the highest level since December 2007. The S&P GSCI gauge of 24 commodities rose for a seventh day, climbing to its highest in five months. Spot gold touched $1,778, its highest price since Feb. 29, oil briefly topped $100 a barrel and Treasuries declined.
Another report today showed confidence among U.S. consumers unexpectedly improved in September, boosted by gains in stock prices and home values.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 the prior month. The gauge was projected to fall to 74, according to the median forecast of 71 economists surveyed by Bloomberg News.
Retail sales minus autos and gasoline increased 0.1 percent in August, less than forecast, after a 0.8 percent gain in July, the Commerce Department said today in Washington. Overall purchases increased 0.8 percent after a 0.6 percent advance.
Higher food and fuel costs along with smaller gains in payrolls and wages may take a toll on household finances, posing a challenge for merchants such as Kohl’s Corp. (KSS:US) and Macy’s Inc.
Susan Smith of Memphis, Tennessee, said she and her husband haven’t made any big purchases recently and have no plans to do so in the immediate future.
“We’ve been cutting back tremendously,” said Smith, who was attending a conference in Washington. “I think the economy is still in trouble. We’ve not done a lot of spending, not done a lot of traveling like we’ve done before.”
Gasoline prices are taking a toll. Regular-grade gas prices have climbed to an average of $3.87 per gallon, up 54 cents since the start of July, according to AAA, the nation’s largest motoring organization.
The increase accounted for 80 percent of a 0.6 percent in consumer prices in August, the Labor Department said today. The gain in the measure of the cost of living was the biggest in more than three years.
“Gas prices make a big difference,” said Terence Thompson, a landscaper from Mechanicsville, Maryland. “The cost of food has gone up, clothes -- I have adjusted a lot. I have to watch what I buy.”
Household purchases, which account for about 70 percent of the economy, rose at a 1.7 percent annual rate from April through June, the weakest since the third quarter of 2011, Commerce Department data show.
The figures, along with a slower global economy, help explain why manufacturers are pulling back.
Manufacturing, which accounts for about 12 percent of the economy, fell 0.7 percent in August, the biggest decrease in five months, the Fed’s data showed.
“Manufacturing is clearly decelerating,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who predicted a decline. “There is weakness all around in today’s numbers. Manufacturing’s contribution to the economy is coming down.”
Dow Chemical, the biggest U.S. chemical maker, this month announced a new global business structure as it seeks to reduce costs and respond to softening global demand.
“Industries and sectors worldwide are really in the midst of what we consider an incredible challenging environment,” Andrew Liveris, chief executive officer of the Midland, Michigan-based company, told investors at a Sept. 11 conference.
The same day, Dallas-based Texas Instruments, the largest maker of analog chips, said demand in all segments except for wireless is tracking below expectations this quarter.
“Almost all of them are running a little weaker than what we had expected back in July,” Texas Instruments Vice President Ron Slaymaker said in a Sept. 11 teleconference with analysts. “We’re just operating in a weaker demand environment.”
Utility output plunged 3.6 percent, after a 1.3 percent gain the prior month. The figures may reflect some easing after the surge in July, which was the hottest month in the lower 48 states in records going back to 1895, according to the National Oceanic and Atmospheric Administration.
Mining output, which includes oil drilling, decreased 1.8 percent.
The production of motor vehicles and parts fell 4 percent, the most in more than a year, after increasing 2.7 percent the month earlier, today’s report showed. Excluding autos and parts, manufacturing dropped 0.4 percent after a 0.2 percent gain in July.
The latest results on car purchases have been more encouraging. Autos, a source of manufacturing strength, sold at a 14.46 million annual rate last month, the fastest since the surge in August 2009 tied to the government’s “cash-for- clunkers” program. They were up from a 14.05 million pace in July, according to data from Ward’s Automotive Group.
The Fed yesterday announced its third round of large-scale asset purchases since 2008. Chairman Ben S. Bernanke for the first time pledged that the Federal Reserve will buy bonds until the economy gets closer to his goals, cementing his place as the Fed’s most innovative chairman and signaling the battle against unemployment eclipses any concerns about inflation for now.
A stagnant labor market may restrain household spending. Employers added 96,000 workers in August after a 141,000 increase in July. Unemployment, which fell to 8.1 percent as more Americans left the labor force, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948.
“We’re looking for ongoing, sustained improvement in the labor market,” Fed Chairman Ben S. Bernanke said at a press conference yesterday after the central bank said it would buy $40 billion a month in mortgage-backed securities.
Slower-growing foreign markets will crimp export-related activity at U.S. factories. Exports decreased 1 percent in July as American manufacturers shipped fewer automobiles, metals and consumer goods abroad.
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