Production at US factories increased more than expected in February amid a rise in temperatures, but data for the prior month was revised sharply down as manufacturing remains hamstrung by high interest rates.
Manufacturing, which accounts for 10.3% of the economy, has been squeezed by 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022. The US central bank is expected to leave rates unchanged at the end of a two-day policy meeting next Wednesday. Financial markets anticipate rate cuts will start in June.
"The manufacturing sector continues to face headwinds from higher borrowing costs and tighter credit conditions," said Rubeela Farooqi, chief US economist at High Frequency Economics. "However, lower interest rates as the Fed starts cutting the target range this year, as well as an onshoring of supply networks may provide support to factory activity in 2024."
Manufacturing output rebounded 0.8% last month after a downwardly revised 1.1% drop in the prior month, the Fed said. Factory output was previously reported to have dropped 0.5% in January, weighed down by frigid temperatures.
Economists polled by Reuters had forecast factory output would rise 0.3%. Production at factories fell 0.7% on a year-on-year basis in February. Despite the overall weakness, there remain pockets of manufacturing strength.
Motor vehicle and parts output accelerated 1.8% last month, the US central bank's report showed. That followed a 3.8% weather-induced decline in January.
Durable goods manufacturing production increased 1.0%. Machinery output rose 1.7%. There were also big increases in the production of wood products as well as miscellaneous goods. Output of computer and electronic products rose as did that of electrical equipment, appliances and components.
This bodes well for business investment. Production of nondurable goods rose 0.7%, lifted by the chemicals, printing and support, and paper output categories.
Mild temperatures also boosted mining output, which rebounded 2.2% after plunging 2.9% in January. But oil and gas well drilling fell for the fourth straight month. It was down 10.1% on a year-on-year basis.
Utilities production fell 7.5% as demand for heating ebbed. That followed a 7.4% surge in January.
Overall industrial production gained 0.1% in February after falling 0.5% in January. Industrial production fell 0.2% on ayear-on-year basis in February.
