US factory output falls 0.4 per cent in April, largest drop in 6 months, on widespread weakness

WASHINGTON – U.S. manufacturers cut back on production in April, as auto companies cranked out fewer cars, factories made fewer consumer goods and most other industries reduced output. The weakness suggests economic growth may be slowing.

The Federal Reserve said Wednesday that factory output dropped 0.4 per cent in April, the third decline in four months.

Production of autos and auto parts fell 1.3 per cent in April. The drop is likely temporary because automakers are reporting stronger sales.

Still, the declines in April were broad-based. Factories produced fewer machines, electrical equipment, clothes, appliances, furniture and primary metals. Manufacturers made more computers and electronic products, among the few areas that showed gains.

Factories are making fewer goods in part because of a weaker global economy, which has reduced demand for U.S. exports. And exports are likely to stay sluggish because the recession of the 17 European Union countries that use the euro has extended into its sixth quarter.

“American manufacturers are continuing to struggle in the face of subdued global demand,” said Paul Dales, senior U.S. economist at Capital Economics.

Overall industrial production, which also includes output at utilities and mines, dropped 0.5 per cent in April. That’s the biggest decline since August. Utility production plunged 3.7 per cent, as power output returned to more normal levels after an unusually cold March.

A separate regional manufacturing report indicated that factory activity in the New York region shrank in May, signalling further weakness. The New York Federal Reserve Bank’s Empire State manufacturing survey fell to – 1.4 in May, down from 3.1 in April.

Still, there are some signs that factory output could pick up later this year, particularly in the auto industry.

Ford, GM, Chrysler and Nissan all reported double-digit U.S. sales increases, signalling the best April for car and truck sales in six years. Car sales have risen steadily this year after reaching a five-year high in 2012.

American consumers have shown surprising resilience this year, even after an increase in Social Security taxes has lowered their take-home pay. Many economists say a better job market, cheaper gasoline and sustained gains in housing has helped offset the pinch from the tax increase.

The overall economy grew at an annual rate of 2.5 per cent in the January-March quarter, buoyed by the fastest rise in consumer spending in more than two years.

And Americans boosted their spending at retailers in April, from cars and clothes to electronics and appliances. That raised hopes that consumer spending during the April-June quarter got off to a good start.

Most economists expect economic growth has weakened in the second quarter. But after seeing the more upbeat retail sales figures for April, some analysts raised their forecasts. Analysts at JPMorgan now predict growth will slow to a 2 per cent rate, up from their previous forecast of 1.5 per cent