Industrial Output in U.S. Was Unchanged in July, Fed Says

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Photographer: Daniel Acker/Bloomberg

An employee moves a rack of transmission cases through the Chrysler Group transmission plant in Kokomo, Indiana.

Industrial production in the U.S. was unchanged in July as a slowdown at factories overshadowed an increase in mining.

The reading for output at factories, mines and utilities followed a 0.2 percent gain the prior month that was smaller than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 82 economists called for a 0.3 percent rise in July. Manufacturing, which makes up 75 percent of total production, declined for the first time in three months.

Two regional Fed reports today showed production expanded in the New York and Philadelphia districts this month, signaling factories are resuming their expansion. Low interest rates are spurring sales of new cars and homes, benefiting companies from General Motors Co. (GM) to United Technologies Corp. (UTX)

“Industrial production growth should start accelerating,” said Douglas Handler, Lexington, Massachusetts-based chief U.S. economist at IHS Global Insight, which accurately forecast that output would be unchanged. “Consumer spending is looking healthy and we’re seeing broad increases in business investment.”

Manufacturing in the Philadelphia region expanded in August for the third straight month. The Federal Reserve Bank of Philadelphia’s general economic index fell to 9.3 from a reading of 19.8 in July that was the highest since March 2011. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.

New York

A similar report from the Federal Reserve Bank of New York showed manufacturing (IPMGCHNG) in New York, northern New Jersey and southern Connecticut expanded in August for a third month. The so-called Empire State index fell to 8.2 from 9.5 in July.

Other reports today showed initial claims for unemployment benefits fell last week to the lowest level since October 2007, and the cost of living rose in July for a third month, supporting the Fed’s forecast that inflation will move closer to its target.

Stocks tumbled, with U.S. benchmark indexes reaching one-month lows, as the economic data triggered losses in government bonds that sent Treasury yields to two-year highs.

The Standard & Poor’s 500 Index slid 1.4 percent, the most since June, as Cisco Systems Inc. and Wal-Mart Stores Inc. tumbled after forecasts disappointed investors. Yields on 10-year notes touched 2.8 percent for the first time since August 2011.

Estimates for industrial production in the Bloomberg survey ranged from a drop of 0.3 percent to an increase of 0.9 percent. The prior month was previously reported as a gain of 0.3 percent.

Manufacturing Declines

Manufacturing, which accounts for about 12 percent of the economy, declined 0.1 percent after rising 0.2 percent.

Today’s Fed report also showed that capacity utilization, which measures the amount of plants that are in use, fell to 77.6 percent from 77.7 percent the prior month.

Utility output fell 2.1 percent, the fourth straight drop. Mining production, which includes oil drilling, increased 2.1 percent.

The output of motor vehicles and parts decreased 1.7 percent after a 1.2 percent gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing was unchanged after a 0.1 percent increase.

Car Sales

Even so, the automobile industry is underpinning an improved longer-term outlook. Cars and trucks sold at a 15.7 million annualized rate last month after a 15.8 million pace in June, the strongest back-to-back readings since the end of 2007, figures from Ward’s Automotive Group showed. GM, Ford Motor Co., Chrysler Group LLC, and Honda Motor Co. are among carmakers that plan to boost capacity.

Details of the industrial production data released today also showed machinery production fell 1 percent after rising 1.5 percent, and construction materials rose 0.5 percent for the second month. Output of computers and electronics fell 0.1 percent.

Consumer goods production dropped 0.5 percent, while output of business equipment was unchanged.

Orders in the U.S. are improving going into the second half, said Louis Chenevert, chairman and chief executive officer of United Technologies, the Hartford, Connecticut-based maker of Pratt & Whitney engines and Otis elevators.

Housing Market

“The housing market, for example, for us has been robust this year,” Chenevert said at an Aug. 13 conference. “When you sell furnaces in June, July, it’s a good sign. That means there is new construction.”

In addition, “Europe looks like it’s maybe bottomed out. China continues to be robust for us. India offers us some nice opportunity,” along with South America and Russia, he said.

The euro-area economy emerged from a record-long recession in the second quarter, led by Germany and France. Gross domestic product in the 17-nation euro area rose 0.3 percent in the April-June period after a 0.3 percent contraction in the prior three months, the European Union’s statistics office in Luxembourg said yesterday.

The U.S. economy may expand at a 2.3 percent annualized pace in the third quarter, after growing at a 1.7 percent rate in the prior three months, according to a Bloomberg survey of economists from Aug. 2 to Aug. 6.

Retail sales rose in July for a fourth consecutive month, showing American households are regaining momentum as employment climbs. Purchases of new U.S. homes rose in June to the highest level in five years, signaling gains in residential construction that will support production of related goods, from furniture to appliances.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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