Industrial Output Cut by Weather

U.S. industrial output fell 0.2% in January as warm weather slashed power usage, Federal Reserve data showed Wednesday. But a boost in manufacturing and strong capacity use fanned inflation fears.

Shortly after the report was released, new Fed Chairman Ben S. Bernanke told Congress that the U.S. economy was running so close to capacity, it faced increasing inflation risks that could require higher interest rates to temper.

The Fed said utility output fell 10.1% in January, the largest monthly decline in the 34-year history of the Fed’s industrial production index.

But excluding utilities, January output from U.S. factories and mines would have been 0.8% higher, the Fed said.

Wall Street economists had forecast that overall industrial production would climb 0.3% for the month.

“The warm weather meant that utilities didn’t have to produce the seasonal norm, which occasionally happens in the wintertime,” said Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis.

Although the weather-related fall in utility output caused closely watched industrial capacity utilization to slip to 80.9%, it topped economists’ forecasts of 80.8%. December’s capacity use rate was revised to 81.2% from the previously reported 80.7%.

Manufacturing capacity use was 80.5% in January, the highest level since July 2000.

Also, the Treasury Department reported that net flows of capital into U.S. assets fell to $56.6 billion in December, short of the $65.7-billion U.S. trade deficit that month. Analysts had expected net inflows to ease far less, to $82.3 billion from November’s $91.6 billion

The report is watched by market participants as a sign of whether the foreign appetite for U.S. assets matches U.S. consumption of goods and services from abroad.