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 Though consumer sentiment was steady in early February, there are
worries the persistent and widespread harsh weather could dampen the
morale of households, whose budgets are being stretched by soaring
heating bills.
"The big question is whether the U.S. economy is slowing
significantly or whether it is merely going through a soft patch
caused by extreme weather. The evidence points to the latter," said
Chris Williamson, chief economist at Markit in London.
Factory production fell 0.8 percent last month, the Federal Reserve
said on Friday. It was the first drop since July and the biggest
since May 2009, when the economy was still locked in recession.
Output had increased 0.3 percent in December.
The Fed said "severe weather ... curtailed production in some
regions of the country." Economists polled by Reuters had expected
manufacturing output to edge up 0.1 percent.
A separate report showed the Thomson Reuters/University of Michigan
index of consumer sentiment stood at 81.2 early this month,
unchanged from January. The survey's barometer of current economic
conditions fell to 94.0 from 96.8 in January.
"The good news is that confidence proved resilient to recent
government reports of weak growth in income and employment," survey
director Richard Curtin said.
"The not-so-good news is that the full impact on household budgets
from the harsh winter has yet to be registered."
Manufacturing joined weak retail sales and employment data in
suggesting that cold weather had spurred a step-back in economic
growth early in the first quarter after a strong performance in the
second half of 2013.
With unusually low temperatures and disruptive snow storms extending
into February, the run of downbeat economic reports is likely to
persist and further cloud the growth picture.
Given the weather's role in the slowdown, economists say the Fed
will likely discount the reports and continue with measured
reductions in its monetary stimulus. It has reduced its monthly bond
buying to $65 billion from $85 billion in two steps since its
December policy meeting.
"We expect a more buoyant performance in the spring as the economy
rebounds from the winter chill," said Millan Mulraine, deputy chief
economist at TD Securities in New York.
"This is largely consistent with the Fed's view that the current
slowdown will prove transitory, and should have no direct impact on
its tapering agenda in the near term."
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BROAD-BASED WEAKNESS
Investors on Wall Street shrugged of the manufacturing report. U.S.
stocks were trading higher, with the Standard & Poor's 500 index on
track for its first two-week winning streak of the year. Prices for
U.S. Treasury debt fell and the dollar slipped against a basket of
currencies.
The weakness in factory output last month was broad-based, with the
production of motor vehicles and parts tumbling 5.0 percent, the
largest drop since August 2010, after ticking up 0.1 percent in
December.
"The inclement weather in January contributed to some of these
decreases. Numerous motor vehicle assembly facilities lost one or
more days of production during the month," the Fed said.
Apart from the poor weather, auto manufacturers are also likely
cutting back on production because of a sharp increase in motor
vehicle inventories in the fourth quarter. That situation has been
exacerbated by a fall in sales in December and January.
While manufacturing output accelerated in the fourth quarter, the
pace was not as strong as previously thought. Fourth-quarter output
at the nation's factories was lowered to a 4.6 percent annual rate
from a 6.2 percent pace.
"This may be an early sign demand was already slowing even before
2014 began," said Jay Morelock, an economist at FTN Financial in New
York.
The drop in factory output last month and a 0.9 percent fall in
mining activity weighed on overall industrial production, which fell
0.3 percent, the biggest drop since April.
Mining output was also hampered by cold weather, which caused
slowdowns at some oil and gas extraction facilities.
But freezing temperatures boosted demand for heating last month,
causing utilities production to jump 4.1 percent.
With production declining, the amount of industrial capacity in use
fell 0.4 percentage point to 78.5 percent January.
(Reporting By Lucia Mutikani; additional
reporting by Steven C Johnson in New York; editing by Paul Simao)
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