Friday, July 16, 2010

Industrial Production rose 0.1% in June

Slight drop in manufacturing production is no cause for alarm, analysts say

U.S. industrial production rose unexpectedly in June, according to a report released by the Federal Reserve this week.

Production at factories, mines, and utilities rose 0.1%, following a 1.3% gain in May. Economists had forecast a 0.1% drop in June, according to various reports. Utility output rose 2.7 percent, while manufacturing production declined 0.4%.

Economists from the Manufacturers Alliance/MAPI, said the slight drop in manufacturing prouction in June is no cause for alarm, and pointed to the sector's strong pace of growth to date.
“The decline in factory production was primarily concentrated in consumer-related industries such as motor vehicles, home construction materials (wood products, furniture), and food," Daniel J. Meckstroth, MAPI's chief economist said in response to the report. "After a growth spurt earlier this year based primarily on the inventory cycle, the rest of the year’s activity will depend more on fundamentals. For the consumer, meager job gains and the need to repay debt are still constraints on spending growth. Fortunately, business equipment industries are rebounding at a surprisingly strong pace in light of the widespread surplus capacity in manufacturing and in the general economy.

“Firms clearly overdid the capital goods retrenchment during the recession and with improved profitability are spending more on long neglected machinery and equipment,” he added. “A small decline in manufacturing activity should not be alarming given the exceptionally strong pace of growth to date. Even with the June decline in factory output, manufacturing production increased at a 7.9 percent annual rate, well above the 3 to 3.5 percent pace of growth economists estimate that occurred in the general economy in the second quarter. A deceleration in the pace of industrial production growth in the second half of this year is inevitable.”

In other news, manufacturing activity in the New York and Philadelphia regions grew at slower paces this month, according to the New York Fed’s Empire State Index, which covers manufacturing activity in New York, northern New Jersey, and southern Connecticut, and the Philadelphia Fed’s general economic index.

The Empire State Index fell to 5.1 in July, its lowest level this year. The Philadelphia index fell to 5.1 as well, its lowest level since August 2009. Despite the drops, both reports indicate expansion in the manufacturing sector, as the readings are above zero.

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