* Manufacturing production falls 0.7% in September
* Motor vehicle output tumbles 7.2%; mining dives 2.3%
* Industrial production drops 1.3%; utilities fall 3.6%
By Lucia Mutikani
WASHINGTON, Oct 18 (Reuters) - Production at U.S. factories fell by the most in seven months in September as an ongoing global shortage of semiconductors depressed motor vehicle output, further evidence that supply constraints were hampering economic growth.
Manufacturing production last month was also depressed by the lingering effects of Hurricane Ida, which also severely disrupted output at mines. The report from the Federal Reserve on Monday followed on the heels of data last week showing a solid rise in inflation in September. Though retail sales rose last month, that reflected higher prices for motor vehicles.
"While the hurricane disruption and weather effects will fade, labor and product shortages are still worsening, which will continue to weigh on manufacturing output over the coming months and quarters," said Michael Pearce, a senior U.S. economist at Capital Economics in New York.
Manufacturing output dropped 0.7% last month, the largest decline since February. Data for August was revised down to show production falling 0.4% instead of rising 0.2% as previously reported. Economists polled by Reuters had forecast manufacturing production edging up 0.1%.
Production at auto plants tumbled 7.2% after dropping 3.2% in August. The global shortage of microchips is forcing automakers to cut production. There is also a shortage of workers at ports, which is causing congestion and holding up the delivery of raw materials.
Excluding autos, manufacturing output dropped 0.3%. The Fed said lingering effects of Hurricane Ida, which devastated U.S. offshore energy production in late August, contributed 0.3 percentage point to the drop in manufacturing output.
With auto and consumer energy products production tumbling, consumer goods output fell 1.9% last month. There were, however, increases in the output of primary metals and electrical equipment, appliances and components as well as furniture and related products. Nondurable goods production fell 1.0%, with large decreases in chemicals, petroleum and coal products.
Overall, manufacturing increased at a 5.3% rate in the third quarter after growing at a 5.0% pace in the second quarter. Motor vehicle and parts production rebounded at a 8.6% rate as manufacturers scrapped the annual plant closures for retooling over summer to manage their chip supply. Motor vehicle output plunged at a 24.6% pace in the second quarter.
A shortage of motor vehicles helped to drive up inflation in September, through very high prices, and flattered retail sales. The dearth of automobiles is also frustrating efforts to rebuild inventories. The combination of higher inflation, which is cutting into consumer spending, and moderate inventory build have led economists to anticipate that economic growth slowed sharply in the third quarter.
The Atlanta Fed is estimating that gross domestic product growth braked to a 1.2% annualized rate last quarter. The economy grew at a 6.7% pace in the second quarter.
U.S. stocks were trading lower amid concerns about inflation. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.
Last month's decline in manufacturing output combined with a 2.3% decrease in mining and a 3.6% drop in utilities to pull down industrial production by 1.3%. The largest drop in industrial output in seven months followed a 0.1% dip in August. Mining was weighed down by the aftermath of Ida, while demand for utilities subsided following a warmer-than-usual August.
Industrial production rose at a 4.3% rate in the July-September quarter, notching its fifth straight quarter of growth of at least 4%.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, fell 0.6 percentage point in September to 75.9%. Overall capacity use for the industrial sector dropped 1.0 percentage point to 75.2%. It is 4.4 percentage points below its 1972-2020 average.
Officials at the Fed tend to look at capacity use measures for signals of how much "slack" remains in the economy — how far growth has room to run before it becomes inflationary. (Reporting by Lucia Mutikani; Editing by Andrea Ricci)