Gain in Factory Output Provides Boost to U.S. Growth
Industrial production climbed in June to cap the strongest quarter in almost four years as manufacturers provided a bigger spark for the U.S. economy.
A 0.2 percent increase in output at factories, mines and utilities last month followed a revised 0.5 percent advance in May, figures from the Federal Reserve showed today in Washington. While the June gain fell short of expectations, production rose at a 5.5 percent annualized rate from April through June, the most since the third quarter of 2010.
The fastest pace of car sales in eight years and a recent pickup in bookings for business equipment point to further output gains. Improving overseas markets, underscored by a report showing faster growth in China, would also keep assembly lines busy and propel the economy after a first-quarter slump.
“The industrial sector of the U.S. economy has been doing well,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “It’s indicative of an improving economy.”
The housing industry is also starting to show signs of progress. Confidence among the nation’s homebuilders climbed in July to the highest level in six months. The National Association of Home Builders/Wells Fargo’s sentiment measure rose to 53 this month from 49 in June. Readings above 50 mean more respondents said conditions were “good.”
A strengthening labor market, combined with wage growth and rising consumer sentiment, will probably support further gains as the Fed winds down its unprecedented stimulus program.
“If you’re thinking about buying a home, it’s a pretty good time,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who correctly forecast the jump in builder sentiment. “You get employment going, you’re in the midst of a fairly low interest rate environment and home affordability is actually pretty high.”
Stocks advanced, with benchmark indexes trading near all-time highs, as companies from Time Warner Inc. to Intel Corp. rallied amid deals and earnings reports. The Standard & Poor’s 500 Index rose 0.4 percent to 1,981.57 at the close in New York.
China’s economic growth accelerated for the first time in three quarters. Gross domestic product rose 7.5 percent in the April-June period from a year earlier, the statistics bureau said today in Beijing.
The median forecast in a Bloomberg survey of 82 economists called for a 0.3 percent advance in U.S. industrial production. Estimates ranged from a drop of 0.1 percent to an increase of 0.6 percent after a previously reported May gain of 0.6 percent.
Manufacturing (IPMGCHNG), which makes up 75 percent of total production, grew 0.1 percent in June, less than forecast as automakers cut back and factories slowed output of nondurable goods such as energy and clothing. The median estimate in the Bloomberg survey called for a 0.3 percent June increase.
In the second quarter, factory production advanced at a 6.7 percent annualized rate, the fastest since the first three months of 2012.
Utility output fell for a fifth straight month in June, dropping 0.3 percent after a 0.4 percent decline the previous month. Mining production, which includes oil drilling, increased 0.8 percent.
The gain in manufacturing was held back by a drop in auto production. The output of motor vehicles and parts decreased 0.3 percent in June after a 1.9 percent surge a month earlier, today’s report showed. Factory output excluding vehicle and parts production rose 0.2 percent last month.
“Things slowed down a little bit in June,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The auto plant production schedules point to a pickup in auto manufacturing over the next couple of months.”
Industry sales data indicate factory lines will remain busy. Cars and light trucks sold at a 16.9 million annualized pace in June, the strongest since July 2006, after a 16.7 million rate in May, according to data from Ward’s Automotive Group. Such demand helps explain why automakers such as Ford Motor Co. are upbeat about prospects for the second half of 2014.
“We’ve seen very good improvements in manufacturing activity,” Ellen Hughes-Cromwick, Dearborn, Michigan-based Ford’s chief economist, said on a July 1 sales and revenue call. “Credit channels are very constructive for the consumer now, with a still low interest rate environment.”
Ford isn’t alone in seeing improvements. Office furniture maker Steelcase Inc. has reported stronger demand as companies grow more upbeat about the outlook for the economy.
“Through the first three weeks of June, orders have grown at a low-single digit percentage” in the Americas, Chief Financial Officer David Sylvester said in a June 26 earnings call for the Grand Rapids, Michigan-based company. “We experienced order growth in the technical, professional, manufacturing, energy, information technology and insurance services sectors.”
American factories received more orders for business equipment in May, according to the Commerce Department, pointing to gains in investment that will probably help the economy snap back after contracting in the first quarter. Bookings for capital goods such as computers rose 0.7 percent.
Capital spending on equipment fell at a 2.8 percent rate during the first quarter. GDP shrank at a 2.9 percent annualized rate, the biggest decline since the depths of the recession in early 2009.
The downturn in GDP reflected a slowdown in the pace of inventory growth, setting the stage for stronger production as consumer purchases pick up.
To contact the reporter on this story: Jeanna Smialek in Washington at firstname.lastname@example.org