Industrial Production in U.S. Increased 1.2% in May (Update2)
By Timothy R. Homan
June 16 (Bloomberg) -- Production in the U.S. rose in May by the most since August, led by increases in automobiles and utilities and showing manufacturers are weathering the effects of the European debt crisis.
Output at factories, mines and utilities increased 1.2 percent last month after a 0.7 percent gain in April, figures from the Federal Reserve in Washington showed today. Plant use increased to the highest level since October 2008.
Manufacturers are leading the recovery from the worst recession since the 1930s as they replenish inventories, sell more goods abroad and invest in new equipment. A lack of inflation means the Fed has scope to keep the target interest rate near zero in coming months to maintain growth.
“Manufacturing is the strongest part of the economy,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who accurately forecast the gain in production. “There’s still a long way to go to get to anything that resembles health in the economy.”
Stocks declined on a Commerce Department report earlier today showing housing starts fell in May by the most since March 2009. The Standard & Poor’s 500 index fell 0.2 percent to 1,112.73 as of 10:05 a.m. in New York.
Housing starts fell 10 percent to a 593,000 annual rate, from a revised 659,000 pace in April that was less than previously estimated. Building permits, a sign of future construction, unexpectedly declined to a one-year low. Single- family home starts suffered the biggest drop since 1991.
Producer Prices
Prices paid to factories, farmers and other producers fell 0.3 percent, the third decline in four months, figures from the Labor Department showed today. Excluding food and fuel, so- called core prices climbed 0.2 percent for a second month.
Economists forecast industrial production would increase 0.9 percent in May, according to the median of 82 projections in a Bloomberg News survey. Estimates ranged from gains of 0.5 percent to 1.6 percent.
The Fed’s report showed capacity utilization, which measures the amount of a plant that is in use, rose to 74.7 percent last month from 73.7 percent in April. The gauge averaged 80 over the past 20 years and suggests inflation remains low.
Motor vehicle and parts production climbed 5.5 percent last month, the biggest increase since last September, after a 1.4 percent drop.
Utility output jump 4.8 percent in May on unseasonably warm weather, while mining production, which includes oil drilling, fell 0.2 percent.
Business Equipment
Production of business equipment increased 1.3 percent after a 1.6 percent gain in April. Output of computers, electrical equipment and appliances increased 1.4 percent last month. Consumer goods production rose 1.2 percent in May.
Deere & Co., the world’s largest farm-equipment maker, said on its website last week that sales of utility tractors rose in the “double digits” in May, compared with a 6 percent increase for the industry overall.
Growing global demand for agricultural commodities, housing and infrastructure are driving sales, Samuel Allen, chief executive officer of the Moline, Illinois-based company, said last month in a statement. Deere last month raised earnings and sales forecasts for a second time this year after second-quarter profit top analysts’ estimates.
Manufacturing, which makes up about 11 percent of the economy, is benefiting from gains in business spending and global economic growth. The U.S. grew at a 3 percent annual rate in the first quarter, helped by the biggest increase in consumer spending in three years and a 13 percent rise in business investment in new equipment, the Commerce Department said last month.
U.S. exports have risen 10 of the last 12 months, helped by surging growth in emerging Asian and Latin American countries, according to figures from the Commerce Department.
The Fed said it plans to issue annual revisions to the industrial production index and measures of capacity utilization on June 25.
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