Following several months of steady growth, U.S. industrial output decreased in February for the first time since October 2010, although manufacturing continued to post strong performance.

Industrial production in the United States decreased 0.1 percent in February, following an upwardly revised 0.3 percent increase in January, according to the U.S. Federal Reserve‘s latest industrial sector report. Although this marked the first month production has fallen since October 2010, key segments of the industrial sector remain strong.

Released last week, the Fed report indicates that much of last month’s production drop was due to a decline in utilities output, which fell 4.5 percent on account of unseasonably warm weather in February that reduced heating demand. Utilities production fell 2 percent in January, following a 4.7 percent jump in December.

Manufacturing production, which constitutes the largest portion of overall industrial production, increased 0.4 percent in February, following gains of 0.9 percent in January and 1.1 percent in December. Last month’s manufacturing output rose 6.9 percent above the total for February 2010 and marked the sixth consecutive month of growth. Mining output also increased, rising 0.8 percent in February to recover from a 0.7 percent decline in January.

At 95.5 percent of its 2007 average, total industrial production remained 5.6 percent above its year-ago level in February.

“Industrial production has risen by nearly 12 percent since hitting its recession low in June 2009. It remains about 6 percent below its pre-recession peak in September 2007,” the Associated Press reports. “Manufacturers have increased production in 17 of the 21 months since the recession ended. They are expected to keep boosting economic growth, despite the nuclear crisis in Japan.”

The largest production gains last month were in durable manufacturing, which grew 0.9 percent, led by output of motor vehicles and parts, which rose 4.2 percent in February. Non-durable goods manufacturing remained relatively unchanged, while business equipment production rose 0.5 percent, including a 0.2 percent increase in industrial equipment output. However, consumer goods production declined 0.5 percent in February, largely due to weakness in consumer energy products.

“The factory sector continues to be a primary catalyst for the still-shaky economic expansion, although the February data hint at a degree of moderation that is consistent with somewhat slower growth in capital spending and exports,” Cliff Waldman, an economist for the Manufacturers Alliance/MAPI, said in an analysis of the Fed report. “Production activity in key supply chain sectors was weak in February, with machinery output flat and primary metals output contracting by 1.1 percent.”

Capacity utilization, a measure of how much the industrial sector’s production capabilities are being used, totaled 76.3 percent in February, slightly down from 76.4 percent in January but still 0.1 percent above the prior-year level.

“The still-low level of capacity utilization, in combination with high unemployment, [means] factories have a lot of leeway to increase production as demand rises. That should act as drag on prices,” the Wall Street Journal explains. “In some areas, however, capacity has tightened significantly. Capacity utilization at textile mills, at 79.1 percent, is 4.5 percentage points above the pre-recession average. Apparel makers, at 84.6 percent capacity, are up 10.7 percentage points versus the pre-recession average.”

Despite the recent downturn in industrial production, the manufacturing industry continues to make gains and its prospects for the future remain positive. According to MAPI’s latest quarterly U.S. Industrial Outlook, manufacturing production grew at a 4 percent annual rate in the fourth quarter of 2010, and is forecast to increase by 5.5 percent in 2011 and 4.6 percent in 2012.

MAPI forecasts that 22 of the 24 industries tracked in the report will expand in 2011, led by mining and energy machinery at 18 percent growth, followed by industrial machinery at 17 percent growth. Moreover, 23 industries are expected to expand in 2012, including five industries forecast to post double-digit growth.

“The industrial recovery is expected to accelerate in 2011. Consumer spending for durable goods is likely to grow rapidly thanks to the additional payroll tax cuts passed late last year,” Daniel J. Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, said. “Business confidence surveys indicate improvement and a pickup in hiring, therefore employment growth and modest wage increases will generate additional income for purchases. In addition, exports will be another source of faster growth in manufacturing, and expensing for business equipment will particularly expand high-tech business investment.”

Earlier

U.S. Industrial Production Dips in January

Industrial Production Increases in December

Resources

Industrial Production and Capacity Utilization
U.S. Federal Reserve, March 17, 2011

U.S. Factory Output Rises for 6th Straight Month
The Associated Press, March 17, 2011

MAPI Analysis on Industrial Production: Factory Sector Still a ‘Primary Catalyst’ for Economy
by Cliff Waldman
Manufacturers Alliance/MAPI, March 17, 2011

Some Manufacturing Sectors Putting More Capacity to Use
by Justin LaHart
The Wall Street Journal, March 17, 2011

Manufacturers Alliance/MAPI Quarterly U.S. Industrial Outlook: Acceleration in Pace of Growth
Manufacturers Alliance/MAPI, March 18, 2011