Factory Production in U.S. Little Changed for Second Month
Factory output in the U.S. was little changed in June for a second month, held back by a decline in motor vehicle production.
Manufacturing excluding the output of automobiles rose 0.3 percent, the biggest gain since November, after a 0.1 percent decline, the Federal Reserve’s report showed Wednesday. Total industrial production, which also includes mines and utilities, climbed 0.3 percent after a 0.2 percent decrease.
A recovery in manufacturing will probably take time as factories contend with the dollar’s advance, soft overseas markets and limited business spending in the wake of slumping oil prices. A faster pace of output would help improve prospects for a stronger economy.
“The weakness in manufacturing is past its peak,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who correctly projected the the gain in industrial production. “Domestic demand is certainly growing. Within manufacturing, the weakest part is foreign demand.”
Utility output increased 1.5 percent after a 1.2 percent gain the previous month.
Oil Extraction
Mining production advanced 1 percent, the biggest gain this year and reflecting a pickup in oil extraction. Oil and gas well drilling decreased 3.7 percent, the smallest decline this year, following an 8.7 percent plunge.
The median forecasts in a Bloomberg survey of economists called for a 0.2 percent gain in industrial production and a 0.1 percent gain in factory output.
For manufacturing, which makes up 75 percent of total production and accounts for about 12 percent of the economy, the May reading was revised from a 0.2 percent drop.
The Fed report also showed capacity utilization, which measures the amount of a plant that is in use, climbed to 78.4 percent from 78.2 percent the prior month.
The output of motor vehicles and parts decreased 3.7 percent after a 2.3 percent increase a month earlier. Excluding autos and parts, total industrial production rose 0.5 percent, the first gain in four months.
Vehicle demand, while slower in the most recent tally, remains a mainstay for factories. Purchases of cars and light trucks posted a 17.1 million annualized rate in June after 17.7 million a month earlier, according to Ward’s Automotive Group. It capped the strongest quarter since 2005.
“We feel really good about the current environment,” Katharine Kenny, vice president of investor relations at Richmond, Virginia-based used-vehicle retailer CarMax Inc., said at a June 24 conference.
Construction Materials
Production of machinery and construction materials both dropped 0.1 percent in June, the report showed. Consumer goods output was unchanged, while production of business equipment increased 0.4 percent.
Other reports indicate the industry is starting to see a slight improvement. The Institute for Supply Management said its June factory index increased to 53.5, the best reading in five months, according to figures released July 1.
Progress in the job market is helping underpin household spending, which accounts for about 70 percent of the economy. Employers added 223,000 workers to payrolls in June, and the unemployment rate fell to the lowest level in more than seven years.
Some reports have given less cause for optimism. Retail sales unexpectedly fell 0.3 percent in June after a 1 percent May advance that was smaller than previously estimated, Commerce Department figures showed Tuesday.
Weakness overseas is weighing on exports, which declined in May by the most in three months. The dollar’s advance since June 2014 has made U.S. goods more expensive for foreign customers.
Capital investment may also take time to recoup the slowdown following the more than 45 percent plunge in oil prices in the past year.