Industrial Production in U.S. Rises by Most in Four Months

Posted on July 16, 2013

Industrial production rose in June by the most in four months, signaling U.S. manufacturing is improving heading into the second half of the year.

Output at factories, mines and utilities climbed 0.3 percent, the biggest advance since February, after being little changed in May, a Federal Reserve report showed today in Washington. The gain matched the median forecast of 86 economists surveyed by Bloomberg. Manufacturing, which makes up 75 percent of total output, increased more than projected.

Lean inventories and increased automobile sales are helping to offset softer overseas markets this year and the effects of broad U.S. government budget cuts and higher taxes. A pickup in demand and sustained production gains would help bolster expansion in the world’s largest economy.

“Manufacturing has been kind of a slow grind,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who correctly projected the gain in production. “We expect activity to pick up over the second half of the year. It’s not going to be gangbusters growth, but it’s at least going to be better than what we saw over the last two to three months.”

Estimates in the Bloomberg survey ranged from drop of 0.2 percent to an increase of 0.7 percent.

Prices Rise

The cost of living rose in June by the most in four months as gasoline prices increased, a sign inflation is advancing toward the Federal Reserve’s goal, another report today showed. The consumer-price index increased 0.5 percent after a 0.1 percent gain the prior month, according to Labor Department figures. The median forecast in a Bloomberg survey called for a 0.3 percent rise.

Stocks fell as investors watched earnings from Coca-Cola Co. to Goldman Sachs Group Inc. The Standard & Poor’s 500 Index declined 0.1 percent to 1,680.32 at 9:46 a.m. in New York after closing at a record yesterday.

Manufacturing, which accounts for about 12 percent of the economy, increased 0.3 percent, also the best performance in four months, after a 0.2 percent rise in May that was larger than previously estimated. Economists projected a 0.2 percent increase, according to the Bloomberg survey median.

Production of machinery, including computers and electronic products, increased 1.5 percent last month after dropping 0.7 percent in May. Applied Materials Inc., the largest seller of machinery used in the production of semiconductors and flat-screen displays, expects industry spending to pick up next year as chipmakers boost output to meet demand for mobile-device parts.

Smartphone Demand

Competition among smartphone providers is driving demand for more advanced parts and improvement in the machines that make them, Chief Executive Officer Mike Splinter said at a July 8 analyst briefing in San Francisco.

The Fed’s report today also showed motor vehicle production rose 1.3 percent in June following a 0.5 percent increase the month before. Factory output excluding production of vehicles and parts advanced 0.2 percent for a second month.

The automobile industry has been a bright spot for the economy, with the vehicle sales rate surging to 15.9 million in June, its best monthly pace since November 2007, according to data from Ward’s Automotive Group.

Utility production dropped 0.1 percent in June after falling 2.8 percent the previous month.

Natural Gas

Projected industrial natural gas usage is expected to increase by 2.2 percent this year, according to a short-term energy outlook from the U.S. Energy Information Administration, reflecting economic gains and continued, historically low prices for the commodity that have helped support the manufacturing industry.

Assembly lines turned out 0.5 percent more consumer goods in June and 0.5 percent more business equipment.

Capacity utilization, a measure of efficiency, climbed to 77.8 percent from 77.7 percent the month before, today’s Fed report showed.

Mining output, which includes oil drillings, increased 0.8 percent after climbing 0.4 percent in May.

A regional report yesterday showed manufacturing extended gains into July. The Federal Reserve Bank of New York’s general economic index climbed to 9.5, the highest since February, from 7.8 in June. Readings greater than zero signal expansion in the index, which covers New York, northern New Jersey and southern Connecticut.

Export Markets

Slower-growing foreign markets may still temporarily crimp export-related activity at U.S. factories. The International Monetary Fund projects China’s growth will be 7.8 percent in 2013, down from an 8 percent April forecast, and the 17-country euro area will shrink 0.6 percent as the economies of France, Italy and Spain contract.

Alcoa Inc., the largest U.S. aluminum producer, reported second-quarter adjusted earnings that beat analysts’ estimates after a better-than-expected performance at its unit that supplies components to aerospace and power companies.

The New York-based company expects “continued pressure on prices and demand in North American industrial products and European industrial products,” while auto demand is expected to remain strong, chief financial officer William Oplinger said in a July 8 conference call. “The economy in general is recovering slowly, with different speeds in Europe as well as in the U.S.”