Mario Anzuoni/Reuters
- US factory production fell 3.1% in February, missing economist estimates for 0.2% growth.
- The decline is the first since COVID-19 outbreaks spread across the US in April 2020.
- Manufacturing supported the broader economy throughout the pandemic as factory demand held strong.
- See more stories on Insider's business page.
Factory production in the US contracted for the first time since the early months of the pandemic last month, signaling that one of the more insulated pockets of the economy is still vulnerable to the pandemic and its fallout.
The Federal Reserve's measure of manufacturing output fell 3.1% in February, according to data published Tuesday. Economists surveyed by Bloomberg expected a gain of 0.2%. January's reading was revised higher to a 1.2% gain.
The surprise slump marks the first decline since April 2020, when output plummeted amid widespread lockdowns and supply-chain disruptions. Harsh winter weather in the south drove the bulk of the February decline, the central bank said in a statement, adding that some petroleum refineries and petrochemical facilities faced significant damage from the region's deep freeze.
An 8.3% drop in auto production dragged on the major index as the global semiconductor shortage curbed manufacturing. An index of chemical industry production fell 7.1%. Utilities use surged 7.4%, however, as cold weather lifted demand for heating.
Factory output would've only fallen 0.5% last month had the winter weather not curtailed activity, according to the Fed. The remainder of the hit was largely tied to supply shortages. Consumer demand stayed robust through the virus' dire winter resurgence, but strained supply chains and shipping delays have kept factories struggling to keep up.
Manufacturing buttressed the broader economy through much of the pandemic. While rising coronavirus case counts and prolonged lockdowns cut into the service sector for months, early reopenings at factories helped revive activity just weeks after the US saw its first outbreaks.
Momentum wavered as cases shot higher through the winter but indicators showed the industry still growing as the pandemic peaked. The Institute for Supply Management's measure of sector growth showed manufacturing expanding at its fastest pace in three years last month.
Supply shortages and the severe winter weather presented new hurdles for factories, but strong demand and a boost from new fiscal stimulus should reliably offset such challenges, Oren Klachkin, lead US economist at Oxford Economics, said Tuesday.
"Production will slow in H2 2021 as the services economy fully reopens, but positive underlying drivers and healthy momentum will support continued industrial sector gains," he added.
The Fed's indicator remains one of the less optimistic of overall factory activity. The top manufacturing gauge still sits 4.1% below its year-ago reading.