Icy Weather Sends Industrial Production Down 2.2 Percent Last Month

March 17, 2021 Updated: March 17, 2021

WASHINGTON—Industrial output fell sharply in February as severe winter storms battered much of the country, disrupting a wide range of manufacturing activities from autos to chemical plants.

The expectation is that the drop will be temporary although there are concerns about growing global supply chain problems.

The Federal Reserve reported on March 16 that industrial production fell 2.2 percent in February, reflecting a big decline in output at factories and oil and gas refineries.

Industrial production fell 2.2 percent last month interrupting a string of four positive monthly gains as U.S. factories recovered from the pandemic-induced recession of last spring. Industrial production had been up 1.1 percent in January and 1 percent in December 2020.

The drop in February reflected a 3.1 percent fall in manufacturing and a 5.4 percent decline in mining, a category that includes oil and gas production. The only sector showing an increase last month was utilities, where output rose by 7.4 percent as power production increased to meet heating needs during the severe winter weather that hit much of the country in mid-February.

The weather damage disrupted the Texas power grid, resulting in millions of people going without electricity for an extended period of time. The deep freeze along the Gulf Coast caused serious damage at oil refineries and chemical plants, putting them offline for an extended period.

Without the adverse winter impact, manufacturing would have fallen by a smaller 0.5 percent rather than the 3.1 percent drop while the mining sector would have actually risen by around 0.5 percent, the Fed said.

Output at auto plants dropped 8.3 percent in February with a part of that decline blamed on global shortages of semiconductors. Output at chemical plants feel by 7.1 percent, another weather-related decline.

While analysts believe the weather disruptions will quickly be reversed, there is more concern about global supply chain problem.

“The big concern is that the supply problems in the auto industry are the tip of the iceberg of more widespread global supply constraints,” Michael Pearce, senior U.S. economist at Capital Economics, said in a research note.

However, other analysts forecast continued solid gains in manufacturing output in coming months as the acceleration of vaccinations along with the new $1.9 trillion stimulus package help to support faster economic growth.

“Recovery in output, especially manufacturing, is ongoing and is likely to remain well-supported by government payments … boosting demand for goods,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

The Fed said that total industrial production in February was 4.2 percent below the level of February 2020, the month before the pandemic hit with force in the United States.

U.S. industry operated at 73.8 percent of capacity in February, down from 75.5 percent of capacity in January.

By Martin Crutsinger