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US manufacturing production unexpectedly drops in December on autos

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WASHINGTON – Production at US factories fell unexpectedly in December, led by lower output at motor vehicle factories amid a global semiconductor shortage.

Manufacturing output fell 0.3% last month after increasing 0.6% in November, the Federal Reserve said on Friday. Economists polled by Reuters predicted a 0.5% increase in industrial production. Production increased by 3.5% compared to December 2020.

The manufacturing sector, which represents 11.9% of the US economy, remains supported by reduced inventories in businesses while demand for goods remains strong. But COVID-19 and the recovery from the pandemic have overloaded supply chains, causing inflation.

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Manufacturing output increased at an annualized rate of 4.9% in the fourth quarter after increasing at a rate of 4.0% in the July-September quarter.

Production at auto factories fell 1.3% last month after increasing 1.7% in November. Motor vehicle production is about 6% below its level a year earlier.

Falling manufacturing output last month combined with a 1.5% drop in utilities pushed industrial production down 0.1%. This follows a 0.7% gain in November. Utilities were affected by unusually warm weather in December, which reduced demand for heating.

Mining production increased 2.0%. Industrial production rose 4.0% in the fourth quarter. This follows a rate of increase of 3.5% in the third quarter.

The capacity utilization of the manufacturing sector, a measure of the extent to which businesses are making full use of their resources, fell 0.2 percentage points to 77.0% in December. Overall capacity use for the industrial sector slipped 0.1 percentage point to 76.5% last month. It is 3.1 percentage points lower than its 1972-2020 average.

Fed officials tend to look at measures of capacity utilization to get signals about how much ‘slack’ remains in the economy – how much room for growth does it have before it leaves? does not become inflationary. (Reporting by Lucia Mutikani; Editing by Andrea Ricci)