Industrial Production in U.S. Increased 0.1% in June

Friday, 16 July 2010

Industrial production in the U.S. unexpectedly rose in June as higher temperatures across the nation led to increased utility use. Factory output, which makes up 75 percent of the total, declined the most in a year Production at factories, mines and utilities increased 0.1 percent after a 1.3 percent gain in May, figures from the Federal Reserve showed today. Economists had forecast a 0.1 percent drop in June, according to the median estimate in a Bloomberg News survey. Utility output rose 2.7 percent, while production at manufacturers declined 0.4 percent.Factories, which led the economy out of the worst recession since the 1930s, are facing less pressure to boost production to rebuild inventories as consumer spending cools. Manufacturers will instead be able to count on gains in business investment that have spurred sales and earnings at companies such as Intel Corp.“The manufacturing recovery is looking a bit more mixed than it was a few months ago when it was hard to find any signs of weakness in the data,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Ultimately, businesses aren’t going to be investing at a rapid pace if consumers are going to be more moderate.”Estimates of the 76 economists surveyed by Bloomberg for June production ranged from a drop of 0.8 percent to an increase of 0.8 percent.Stocks fell on the manufacturing data and after a report showing China’s economic growth is moderating. The Standard & Poor’s 500 Index fell 0.7 percent to 1,087.23 at 10:05 a.m. in New York. The 10-year Treasury note was yielding 3 percent, down from 3.04 percent late yesterday.Empire ManufacturingManufacturing in the New York and Philadelphia regions grew at slower paces this month, an earlier report showed. The New York Fed’s Empire State Index that covers manufacturing in New York, northern New Jersey and southern Connecticut fell to 5.1 in July, the lowest level this year. The Philadelphia Fed’s general economic index dropped to 5.1 in July, the lowest since August 2009, from 8 the prior month. Readings above zero indicate expansion.Other reports showed initial jobless claims declined, reflecting a smaller number of factory closings for this time of year, and producer prices dropped more than forecast.The Fed’s report showed U.S. capacity utilization, which measures the amount of a plant that is in use, held at 74.1 percent last month. The gauge averaged 80 over the past 20 years and suggests inflation remains low.Utility OutputUtility output increased after a 5.6 percent jump in May. Helping to boost utility demand, last month was the eighth- warmest June in 116 years, according to the National Climatic Data Center. Mining production, which includes oil drilling, rose 0.4 percent.Manufacturing was restrained by a decline in automobile production. Output of motor vehicles and parts dropped 1.9 percent in June after a 5.6 percent jump a month earlier. Excluding autos and parts, manufacturing was down 0.3 percent.Consumer goods production fell 0.6 percent. The output of appliances, furniture and carpeting dropped 1.7 percent after a 1.2 percent decrease.Production of business equipment increased 0.9 percent after a 1.4 percent rise in May. Output of computers and semiconductors led the gain last month.Business SpendingWhile limited job creation has restrained consumer spending, manufacturers are enjoying a pickup in business investment in new equipment. Manufacturing shares have also outperformed the market. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies has increased 8.2 percent this year through yesterday compared with a 1.8 percent decline in the broader S&P 500.“Capacity still needs to be increased in order to meet demand,” Richard Hill, chief executive officer of Novellus Systems Inc., said in an interview July 13. “There’s a major overhaul of pc’s throughout the corporate world.”Novellus, which makes semiconductor equipment, said July 12 bookings rose 20 in the second quarter compared with a year earlier and shipments increased 17 percent. “Challenges” in North America “are not as bad as people might report” and consumers are “reasonably confident that the economy is going to rebound,” Hill said in the interview.Intel, the world’s biggest chipmaker, said on July 13 that sales will be $11.6 billion this quarter, plus or minus $400 million. Analysts estimated $10.9 billion on average, according to a Bloomberg survey.Companies have resumed spending on PCs and servers, fueling demand for chips, said Chief Financial Officer Stacy Smith. “We saw a resurgence of the enterprise market” Smith said in an interview. “We see inventory levels that are healthy.”

Source: Bloomberg