Economic Report: Industrial output falls by most in five months, pushed lower by GM strike

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Employees check the fit of a window of an electric bus during production at the BYD Coach and Bus factory in Lancaster, California.

The numbers: U.S. industrial production fell 0.4% in September, the biggest drop since April, the Federal Reserve reported Thursday. Output was reduced by the United Auto Workers strike at General Motors GM, -0.48%  .

Wall Street economists had expected a 0.2% decline, according to a MarketWatch survey. Output in August was revised higher to a 0.8% gain from the prior estimate of a 0.6% increase.

For the third quarter, industrial output rose at a 1.2% annual rate, following declines of about 2% in both the first and second quarters.

Industrial capacity in use slumped to 77.5% in September from 77.9% in the prior month. Economists had expected a reading of 77.7%.

Factory activity has slumped since last year.

What happened: Manufacturing production fell 0.5% in September with output reduced by the GM strike. Excluding autos, manufacturing fell 0.2%.

The decline in output was broad-based, with only utility production rising in the month due to unseasonably warm weather.

Output at mines and energy firms slumped 1.3%. The index for mining fell at a 4.4% annual rate in the third quarter, the first quarterly decrease in three years.

Big picture: The GM strike that started in the middle of September clouds the data somewhat but it is still clear that the U.S.-China trade war is dampening factory activity. Auto workers and the care company have reached a tentative deal to end the month-long strike.

The Fed’s Beige Book reported Wednesday that some manufacturers are beginning to layoff workers while others are trying to manage by cutting worker hours instead. The Fed is watching carefully to see if the weakness spreads to the services sector or consumer spending.

What are they saying? “Depressed by the GM strike, but the underlying picture is grim too, and still deteriorating,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Market reaction: Stocks opened higher Thursday on reports of a tentative Brexit deal and better-than-expected U.S. corporate earnings reports. The Dow Jones Industrial Average DJIA, +0.30%   was up 75 points to 27.075 in early trading.