American manufacturing is in danger of entering a mild recession this year

Jeff J Mitchell/Getty
  • US industrial production fell 0.6% in January, compared with expectations for a slight increase.
  • Manufacturing activity showed particular weakness, dragged down by falling motor vehicle output.
  • The sector is expected to continue to decline, economists say, potentially entering a mild recession this year.

A measure of factory output unexpectedly fell at the start of the year, raising concerns that the sector could be headed for a downturn.

Industrial production declined 0.6% in January from a month earlier, the Federal Reserve said in a report Friday, well below expectations for a 0.1% increase. Manufacturing production slid 0.9%, seen as the result of rising protectionism and decelerating economic growth around the world.

“Manufacturing is under real pressure from the slowdown in China and the trade war, and we expect output to drift down over the first half of the year, putting the sector into a mild recession,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

A steep fall in auto production helped pull the sector lower, with the index falling 8.8% from a two-year high a month earlier. Motor vehicle assemblies fell from 12.3 million units at an annual rate in December to 10.6 million units in January, their lowest reading in nearly a year.

“The large drop in the output of motor vehicles and parts contributed significantly to sizable decreases posted by consumer durable goods, transit equipment, and durable materials,” the Fed said.

Carmakers across the US warned last year they could be hurt by the tit-for-tat trade war between Washington and Beijing, which is in its seventh month and counting. Hundreds of billions of dollars worth of tariffs between the world’s largest economies have raised company costs, lowered access to foreign markets and disrupted supply chains.

While most other categories of factory output also fell, total industrial production still rose 3.8% from a year earlier.

Still, economists expect that slowing economic activity will continue to weigh on the sector. In January, the International Monetary Fund lowered its 2019 growth to 3.5% from 3.7%.

“Global manufacturing conditions have continued to deteriorate, and US producers are unlikely to remain immune to this slowdown,” said Andrew Hunter, a senior economist at Capital Economics.

American manufacturing was plunged into its longest recession since the financial crisis in 2015, when a collapse in oil prices and a strong dollar crimped output.

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