Manufacturing Boosts U.S. Expansion as Fuel Prices Dent Consumer Sentiment
Manufacturing Probably Bolstered U.S. Expansion February
Beth Hall/Bloomberg
Industrial production unexpectedly declined in February, led by a plunge in utility use, a Federal Reserve report showed today.
Industrial production unexpectedly declined in February, led by a plunge in utility use, a Federal Reserve report showed today. Photographer: Beth Hall/Bloomberg
March 17 (Bloomberg) -- Ellen Zentner, senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about the impact of stock market volatility on the U.S. labor market. Zentner, speaking with Lisa Murphy on Bloomberg Television's "Fast Forward," also discusses the correlation between the crisis in Japan and investor sentiment. (Source: Bloomberg)
Production at U.S. factories increased for a sixth month in February, indicating manufacturing will keep stoking the economy and underscoring the Federal Reserve’s view of a stronger expansion.
The 0.4 percent rise in manufacturing output, which makes up 75 percent of all industrial production, followed a 0.9 percent January gain that was three times as large as initially estimated, Fed figures showed today. A gauge of Philadelphia- area factories unexpectedly climbed to a 27-year high.
Texas Instruments Inc. and General Motors Co. (GM) are among firms benefiting from overseas demand, business investment and inventory restocking that are fueling manufacturing, the industry that laid the foundation for the recovery. A decline in consumer confidence, also reported today, showed higher fuel prices pose a risk to the household spending that makes up 70 percent of the economy.
“Today’s data are very consistent with the ‘firmer footing’ that the Fed was discussing” this week, said Drew Matus, senior U.S. economist at UBS Securities LLC in New York. At the same time, “between oil and events in Japan, they do pose a risk to harming confidence. There is some risk consumers will pull back on spending.”
The Bloomberg Consumer Comfort Index dropped to minus 48.5 in the week ended March 13, the lowest level since August, from minus 44.5 in the prior period. Sentiment fell across most income and age groups and worsened for all education levels.
Other figures today showed a decline in initial jobless claims last week and an eighth straight gain in the index of leading economic indicators.
Stocks Rally
Stocks rallied amid speculation Japan will contain its nuclear crisis and as FedEx Corp.’s profit forecast beat estimates. The Standard & Poor’s 500 Index climbed 1.5 percent to 1,275.66 at 12:29 p.m. in New York.
The Fed’s report showed that industrial production, which includes factories, mines and utilities, unexpectedly fell 0.1 percent in February after a 0.3 percent gain. Utility output slumped 4.5 percent during the month on milder weather.
Production of motor vehicles and parts climbed 4.2 percent in February after rising 4.5 percent a month earlier, the report showed.
U.S. sales at General Motors, Toyota Motor Corp. and Ford Motor Co. in February exceeded analysts’ estimates as industrywide deliveries rose to the fastest pace in 18 months.
“We’re off to a fast start this year,” Donald Johnson, vice president for GM’s North America sales, said on a teleconference on March 1. “Pent-up demand will continue to have a positive influence on industry sales.”
Philadelphia Manufacturing
A gauge of manufacturing in the Philadelphia area jumped to 43.4 in March, the highest since January 1984, from 35.9 in February. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Economists surveyed by Bloomberg forecast the index would fall to 28.8, according to the median estimate of 56 economists surveyed by Bloomberg News. Estimates ranged from 22 to 37.5.
The Philadelphia Fed’s new orders measure increased to 40.3 in March, the highest since November 1983. A gauge of factory inventories increased to a five-year high.
“We have seen orders build through the quarter,” Ron Slaymaker, vice president of investor relations for Dallas-based Texas Instruments, said on a conference call with analysts March 8. “Based upon what we’re seeing through the first two months, we would expect that orders will be up solidly compared to the fourth quarter.”
Higher Prices
Consumer prices rose 0.5 percent in February, led by the biggest rise in food costs since 2008. Excluding food and fuel, the so-called core gauge of consumer inflation climbed 0.2 percent for a second month.
Fed policy makers this week said U.S. growth is becoming more durable and higher energy prices will have a temporary effect on inflation.
“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said this week. “Household spending and business investment in equipment and software continue to expand.”
Higher gasoline prices persisted for another week, becoming a bigger concern for Americans already dealing with rising grocery bills. The Bloomberg Consumer Comfort report showed confidence among households with annual incomes exceeding $100,000 fell to the lowest level since November, posing a risk for consumer spending, the biggest part of the economy.
Began in 1985
The sentiment gauge, which began December 1985, fell to a record low of minus 54 in November 2008, while the peak of 38 was reached in January 2000. Readings averaged minus 45.7 last year.
Another report from the Labor Department showed first-time filings for jobless benefits dropped by 16,000 in the week ended March 12 to 385,000. The four-week average of claims dropped to the lowest level since July 2008, indicating improvement in the labor market.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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