They are. I've even seen small aircraft pilots call the automated weather line from the cockpit while they're preparing to approach the destination airport.
That automated weather frequency relies on METAR data from the Aviation Weather Service here in the US, and that's where ATC gets their information from as well when they're advising pilots of surface winds when giving landing clearance.
Per the source, 167 airport weather stations are not reporting correctly (either due to a highly unlikely concurrent fault with the stations, or more likely an issue with the system they report to).
Local weather is always used, but that's precisely what is unavailable right now.
You have it backwards, ATIS doesn't pull from METARs... the METAR and ATIS recording are both produced at the same time locally by the local weather observer (usually a controller in the tower), reading raw data directly from the on-field weather station and making manual edits as necessary. The two should match up exactly, but that's because they're both produced by the same process.
If the tower is closed, or it's an untowered field, the system can run in automatic mode. In that case the radio broadcast gets updated every minute, much more frequently than METARs get updated (every hour).
