U.S. Industrial Production Fell in August -- Update

By Ben Leubsdorf Features Dow Jones Newswires

U.S. industrial output dropped in August by the most in more than eight years, an early sign of economic disruptions from a severe hurricane season.

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Industrial production -- a measure of output at factories, mines and utilities -- decreased a seasonally adjusted 0.9% in August from the prior month, the Federal Reserve said Friday. The largest one-month decline since May 2009, which was near the tail end of the 2007-09 recession, came after six straight monthly gains. Economists surveyed by The Wall Street Journal had expected a 0.1% gain.

The Fed said Hurricane Harvey, which hit the Gulf Coast late last month, was responsible for most of the decline by depressing oil drilling, petroleum refining and other industrial activity. Readings could remain noisy through the fall, forecasters warned.

"As a guide to the underlying state of the industrial economy, the [industrial production] numbers won't be much use for another couple of months," Pantheon Macroeconomics chief economist Ian Shepherdson said in a note to clients.

Capacity utilization, a measure of industrial slack, fell by 0.8 percentage point to 76.1% in August; economists had expected 76.8%.

Hurricane Harvey hit Texas and Louisiana in late August, disrupting shipping, closing refineries and causing other economic dislocations along the Gulf Coast. Hurricane Irma then hit Florida in early September, knocking out power to millions of households and leaving other damage in its wake.

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Friday's report estimated Harvey reduced the monthly change in total industrial production by about three-quarters of a percentage point in August. The two storms' full impact could emerge in production data for September and October. After Hurricane Katrina devastated New Orleans in September 2005, industrial production fell sharply but recovered in subsequent months.

"Output should bounce back once the storm-related disruptions fade, but with Hurricane Irma striking in September, it is unclear when this will occur," J.P. Morgan Chase economist Daniel Silver said in a note to clients.

Output at U.S. factories fell 0.3% in August and mining output was down 0.8%. Utility production tumbled by 5.5% as unseasonably mild temperatures on the East Coast and elsewhere limited air-conditioning demand, the Fed said.

From a year earlier, total industrial production rose 1.5% in August.

The two hurricanes that hit the U.S. in recent weeks likely will scramble economic indicators over the coming months. Economists expect overall output will weaken in the short run due to storm-related job losses and other disruptions, but pick up in subsequent quarters as rebuilding efforts take hold.

More broadly, the U.S. manufacturing sector has gained strength this year with the help of a weaker dollar, more stable oil prices and a pickup in global growth. The Institute for Supply Management's closely watched index of manufacturing activity rose in August to 58.8, its highest level since April 2011.

"A strengthening in economic growth abroad has provided important support for U.S. manufacturing production and exports," Fed Chairwoman Janet Yellen told lawmakers in July.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

September 15, 2017 10:31 ET (14:31 GMT)