Manufacturing Rebound Led by Autos Supports Growth: Economy

Photographer: Jeff Kowalsky/Bloomberg

An employee works on a Jeep Cherokee on the production line at the Chrysler Group LLC Toledo Assembly Complex in Toledo, Ohio. Close

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Photographer: Jeff Kowalsky/Bloomberg

An employee works on a Jeep Cherokee on the production line at the Chrysler Group LLC Toledo Assembly Complex in Toledo, Ohio.

Factories turned out more cars, appliances and home furnishings in August, propelling the biggest increase in U.S. industrial production in six months and indicating manufacturing (IPMGCHNG) will contribute more to the expansion.

Output at factories, mines and utilities rose 0.4 percent after no change the prior month, a report from the Federal Reserve showed today in Washington. Manufacturing, which makes up 75 percent of total production, advanced by the most this year.

The figures showed strength in housing and autos is rippling through the economy, with a measure of appliance and furniture output climbing to the highest since 2009 and vehicle assemblies growing at the fastest pace in six years. A pickup in global markets and stronger consumer demand would help spark further progress in the sector that struggled earlier this year.

“Manufacturing should be a pretty decent contributor to growth over the second half of the year,” said Brett Ryan, a U.S. economist at Deutsche Bank Securities Inc. in New York, whose firm is the second-best forecaster of production for the past two years, according to data compiled by Bloomberg. “You have an elevated level of unfilled orders, so that bodes well for production.”

Another report from the Fed showed manufacturing in the New York region expanded less than forecast in September even as orders and sales grew at a faster pace. The Federal Reserve Bank of New York’s general economic index eased to 6.3 from 8.2 last month. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. A gauge of the six-month outlook advanced to the highest since April 2012.

Stocks Rise

Stocks advanced, sending the Standard & Poor’s 500 Index to a five-week high, after Lawrence Summers withdrew his bid to be the next Fed chairman and tensions over dealing with Syria’s chemical weapons eased. The S&P 500 rose 0.6 percent to 1,697.6 at the close in New York. Summers, a former Treasury secretary, would have tightened Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week.

The median forecast in a Bloomberg survey of 85 economists called for a 0.5 percent advance in August industrial production. Estimates ranged from a drop of 0.1 percent to an increase of 0.7 percent.

Manufacturing, which accounts for about 12 percent of the economy, climbed 0.7 percent after falling a revised 0.4 percent. July factory output was previously reported as a 0.1 percent drop.

Today’s Fed report also showed that capacity utilization, which measures the amount of plants that are in use, increased to 77.8 percent from 77.6 percent the prior month.

Utilities, Mining

Utility output decreased for a fifth straight month, the longest series of declines since January-May 2001. Mining production, which includes oil drilling, increased 0.3 percent.

The output of motor vehicles and parts jumped 5.2 percent after a 4.5 percent decrease a month earlier, today’s report showed. Automaker assemblies increased to an 11.25 million annualized rate last month, the fastest since June 2007. Manufacturing excluding autos and parts increased 0.4 percent after a 0.1 percent drop.

Cars and light trucks sold at a 16 million annualized rate last month, the fastest since November 2007, after 15.7 million in July, figures from Ward’s Automotive Group showed. Sales at General Motors Co. (GM), Ford Motor Co. (F), Toyota Motor Corp. and Honda Motor Co. exceeded analysts’ estimates.

Increasing Capacity

Dearborn, Michigan-based Ford, the second-largest U.S. automaker, is expanding output of its Fusion sedan, and said its factory in Flat Rock, Michigan, could produce another model as demand grows. The additional shift of 1,400 new workers at the plant will boost Fusion capacity more than 30 percent.

“We expect the sales momentum to stay here in the U.S. and around the world,” Joe Hinrichs, Ford’s president of the Americas, told reporters on Aug. 29.

The Fed’s industrial production report showed an index of the output of appliances, furniture and carpet increased 2 percent in August, the sixth straight gain, to the highest level since January 2009.

Output of construction materials rose 0.3 percent, while the production of computers and electronics increased 1.6 percent.

Texas Instruments Inc. (TXN), the largest maker of analog chips, is among companies with a brighter outlook as global markets stabilize.

‘Quite Solid’

“Orders continue to be quite solid” this quarter, Chief Financial Officer Kevin March said at a Sept. 11 technology conference. “We continue to build backlog, which is a good sign. We continue to see strength in three of the four regions of the world,” with Asia, Japan, and the Americas expanding, he said.

The U.S. economy is projected to grow at a 2 percent annualized pace in the third quarter after expanding at a 2.5 percent rate in the prior three months, according to the median estimate of economists surveyed by Bloomberg from Sept. 6 to Sept. 11. A previous survey conducted Aug. 2 to Aug. 6 showed an estimate of 2.3 percent for the third quarter.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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

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