US industrial production down 0.2% in Sept vs 0.2% drop expected

Industrial production down 0.2% in September
Industrial production down 0.2% in September

U.S. industrial production fell for a second straight month in September on renewed weakness in oil and gas drilling, the latest indication that the economy lost momentum in the third quarter.

Industrial output slipped 0.2 percent after a revised 0.1 percent dip in August, the Federal Reserve said on Friday.

Economists polled by Reuters had forecast industrial production slipping 0.2 percent last month after a previously reported 0.4 percent decline in August.

Industrial production rose at an annual rate of 1.8 percent in the third quarter.

The industrial sector has been undermined by a slowing global economy and resurgent dollar, which have eroded demand for U.S. manufactured goods. It is also being weighed down by lower energy oil prices that have undercut capital investment in the energy sector, as well as a so-called inventory correction.

The weak industrial production report added to soft trade, retail sales and employment data that have suggested a significant slowdown in growth after the economy expanded at a 3.9 percent annual pace in the second quarter.

Third-quarter growth estimates are currently below a 1.5 percent rate. Slower growth and low inflation have diminished expectations of an interest rate hike from the Fed this year.

Manufacturing output fell 0.1 percent even though robust demand for automobiles lifted motor vehicle and parts production 0.2 percent. Manufacturing output dropped by a revised 0.4 percent in August, which was previously reported as a 0.5 percent drop.

For the third quarter, manufacturing output increased at a 2.5 percent rate.

There were declines in the production of computer and electronic products, as well as electronic equipment, appliances and components. Primary metals and machinery output increased.

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Mining production fell 2.0 percent as oil and gas well drilling tumbled 4.0 percent after increasing for two straight months. An almost 60 percent plunge in oil prices since June 2014 has hurt the profits of oil-field companies like Schlumberger and Halliburton, leading to deep cuts in their capital spending budgets.

Utilities production increased 1.3 percent in September. With output declining, industrial capacity use fell to 77.5 percent from 77.8 percent in August.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.