Sandy, budget worries hold back US factory output

Updated 17 November 2012
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Sandy, budget worries hold back US factory output

WASHINGTON: US factory production of machinery and equipment fell sharply last month, held back by temporary disruptions caused by Superstorm Sandy and companies' fears that a federal budget crisis could trigger a recession next year.
The Federal Reserve said yesterday that factory output, the most important component of industrial production, fell 0.9 percent in October from September. It would have been unchanged without the storm, the Fed said.
Overall industrial production fell 0.4 percent last month. Utility output dipped 0.1 percent, while mining, which includes oil and gas production, rose 1.5 percent. "Even excluding the impact of Sandy, manufacturing output was no better than stagnant, so there is nothing to be encouraged about in this report," said Paul Ashworth, chief US economist at Capital Economics.
Manufacturing has weakened since spring, in part because companies have scaled back purchases of long-lasting goods that signal investment plans. That trend continued in October: Machinery production fell 1.9 percent, while production of electrical equipment, appliances and components declined 1.4 percent.
"The report suggests the economy still lacks momentum, partly because of the uncertain fiscal outlook," said Sal Guatieri, an economist at BMO Capital Markets.
Many businesses are worried about tax increases and federal spending cuts — known as the "fiscal cliff" — that will take effect in January unless Congress reaches a budget deal before then. Most economists predict the economy will suffer a recession in the first half of 2013 if lawmakers and President Barack Obama can't avoid the fiscal cliff.
Superstorm Sandy has also hurt the economy, although most economists expect the storm's impact to fade in the coming weeks.
The storm hit the Northeast on Oct. 29 and disrupted businesses from North Carolina to Maine. Two regional manufacturing surveys released Thursday also showed Sandy depressed manufacturing activity this month in the Philadelphia region and New York.
Sandy dampened retail sales in October and pushed applications for unemployment benefits last week to the highest level in 18 months, according to government reports released this week.

Still, consumers may have also cut back on retail spending last month because of anxiety over the fiscal cliff. Consumer spending drives roughly 70 percent of economic activity.
Many economists say the economy is growing in the current October-December quarter at a weak annual rate below 2 percent.
There have been hopeful signs that the job market is improving. Employers added 171,000 jobs in October and hiring in August and September was stronger than first estimated. The economy has gained an average of 173,000 jobs a month since July. That's up from an average of 67,000 a month in April through June.
The economy appears to have grown faster over the summer than first thought, based on a handful of positive September reports on inventory growth and trade released this month. Many economists now predict growth at an annual rate of roughly 3 percent in the July-September quarter, up from the initial estimate of 2 percent reported last month.
The government releases its second estimate for third-quarter growth on Nov. 29.


Harley-Davidson to move some production out of US to avoid EU tariffs

Updated 25 June 2018
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Harley-Davidson to move some production out of US to avoid EU tariffs

  • The shift in production is an unintended consequence of Trump’s administration imposing tariffs on European steel and aluminum
  • In response to US tariffs, the EU began charging import duties of 25 percent on a range of US products

Harley-Davidson Inc. said on Monday it would move production of motorcycles shipped to the European Union from the United States to its international facilities and forecast the trading bloc’s retaliatory tariffs would cost the company $90 million to $100 million a year.
The shift in production is an unintended consequence of US President Donald Trump’s administration imposing tariffs on European steel and aluminum early this month, a move designed to protect US jobs.
In response to the US tariffs, the European Union began charging import duties of 25 percent on a range of US products including big motorcycles like Harley’s on June 22.
In a regulatory filing https://bit.ly/2tA1ru0 on Monday, the Milwaukee, Wisconsin-based company said the retaliatory duties would result in an incremental cost of about $2,200 per average motorcycle exported from the United States to the European Union, but it would not raise retail or wholesale prices for its dealers to cover the costs of the tariffs.
The company expects the tariffs to result in incremental costs of $30 million to $45 million for the rest of 2018, the filing said.
“Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region,” the company said.
Struggling to overcome a slump in US demand, Harley has been aiming to boost sales of its iconic motorcycles overseas to 50 percent of total annual volume from about 43 percent currently.
In January, the company announced the closure of a plant in Kansas City, Missouri as part of a consolidation plan after its motorcycle shipments fell to their lowest level in six years.
In 2017, Harley sold nearly 40,000 new motorcycles in Europe which accounted for more than 16 percent of the company’s sales last year. The revenues from EU countries were second only to the United States.
Harley said ramping-up production at its overseas international plants will require incremental investments and could take at least nine to 18 months.
The company will provide more details of the financial implications of retaliatory EU tariffs and plans to offset their impact on July 24 when its second-quarter earnings are due, the filing said.
Trump vowed to make the iconic motorcycle maker great again when he took office last year.
In late April, Harley said Trump’s metal tariffs would inflate its costs by an additional $15 million to $20 million this year on top of already rising raw material prices that it expected at the start of the year.