With steep drops in manufacturing and mining output more than offsetting a sharp increase in utilities output, the Federal Reserve released a report on Tuesday showing an unexpected slump in U.S. industrial production in the month of February.
The Fed said industrial production tumbled by 2.2 percent in February after jumping by an upwardly revised 1.1 percent in January.
The pullback surprised economists, who had expected industrial production to climb by 0.6 percent compared to the 0.9 percent increase originally reported for the previous month.
The unexpected decrease in industrial production came as manufacturing output plunged by 3.1 percent in February after surging up by 1.2 percent in January.
Mining output also showed a substantial pullback during the month, plummeting by 5.4 percent in February following a 2.1 percent spike in January.
The Fed said the severe winter weather in the south central region of the country in mid-February accounted for the bulk of the declines in output for the month.
Excluding the effects of the winter weather, the central bank said manufacturing output would have dipped by just 0.5 percent and mining output would have risen by 0.5 percent.
Meanwhile, the report showed utilities output soared by 7.4 percent in February after falling by 0.6 percent in the previous month.
“With the weather returning to seasonal norms in March, all those distortions should be reversed soon, and the latest survey evidence suggests that underlying manufacturing demand remains strong,” said Michael Pearce, Senior U.S. Economist at Capital Economics.
He added, “The big concern, however, is that the supply problems evident in the auto industry are the tip of the iceberg of more widespread global supply constraints that will prevent output from closing the gap with goods demand, especially with the latter set to be boosted by the latest round of stimulus checks.”
The Fed also said capacity utilization for the industrial sector dropped to 73.8 percent in February from a revised 75.5 percent in January.
Economists had expected capacity utilization to inch up to 75.8 percent from the 56.6 percent originally reported for the previous month.
Capacity utilization in the manufacturing and mining sectors fell to 72.3 percent and 77.5 percent, respectively, while capacity utilization in the utilities sector jumped to 78.5 percent.
The material has been provided by InstaForex Company – www.instaforex.com