Industrial production in the United States rose more than forecast last month as cold weather boosted electricity demand and manufacturers stepped up output after whittling down excess inventories.
The 0.7-percent increase in production at factories, mines and utilities followed a revised 0.3-percent decrease in March that was bigger than originally reported, Federal Reserve figures showed last Wednesday. Capacity utilization, which measures the proportion of plants in use, rose to 81.6 percent from 81.2 percent in March.
Motor vehicles and high-technology goods led the advance in factory output, while the coldest April in a decade increased home-heating demand. A pickup in manufacturing would set the stage for stronger growth later in the year, in line with the Fed’s forecast.
“It seems that at least the manufacturing part of the economy is going back on stream,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. The report lends “credence to the inventory correction being over, or close to being over, and production is now picking up,” he said.
Factory output, which accounts for about four-fifths of industrial production, rose 0.5 percent after rising 0.6 percent in March.
Economists had forecast industrial production would rise 0.3 percent after a previously reported decline of 0.2 percent the prior month, according to the median of 81 forecasts in a Bloomberg News survey. Projections ranged from no change to a gain of 0.6 percent.
Another government report last Wednesday showed housing starts unexpectedly rose last month, while building permits dropped to the lowest in almost a decade, signaling the increase in construction may be short-lived.
Builders broke ground on new dwellings at an annual rate of 1.528 million in April, a 2.5-percent increase from a revised 1.491 million rate the prior month that was weaker than previously estimated, the Commerce Department said.
But building permits, an indication of future construction, slumped 8.9 percent to a 1.429 million pace, the lowest level since June 1997.
The contrast between the housing figures and the improvement in industrial output reinforced Fed forecasts that the housing slump won’t bring the six-year economic expansion to a halt. The improvement in manufacturing will help compensate for a slowdown in consumer spending, which has driven growth for the past two quarters.
“Housing is in recession, but it doesn’t seem to be spilling over into the rest of the economy,”’ said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Mass., and a former Fed economist. “The good news is that manufacturing is rebounding.”
Utility production rose 3.5 percent after falling 7.5 percent in March. Nationwide, April was the coldest in a decade following the second-warmest March in more than a century, according to Planalytics, a business weather-monitoring service.
“We’re seeing growth on the order of 5 to 7 percent per year in earnings,” said Michael Morris, chief executive officer at American Electric Power Co., the largest U.S. producer of electricity from coal, in Columbus, Ohio, on May 2. “Our economy is so diverse that it continues to remain robust and we have a tremendous amount of capital investment opportunities.”
Industrial capacity utilization was expected to rise to 81.5 percent from an originally reported gain of 81.4 percent, according to the Bloomberg survey. Manufacturing capacity use rose to 80.2 percent from 80 percent.
Plant operating rates, an indication of the ability of factories to produce goods with existing resources, have averaged about 81 percent over the last 30 years.
The Federal Reserve, in its latest policy statement on May 9, said inflation excluding food and energy remained “somewhat elevated” and the “high level of resource utilization,” a reference to the tight labor market as well as factory capacity usage, had “the potential” to sustain inflationary pressures.
Mining output, which includes oil drilling, declined 0.3 percent last month, after rising 0.1 percent, the Fed said.
The manufacture of consumer durable goods, including automobiles, furniture and electronics, rose 2.1 percent after rising 0.3 percent in March.
Motor vehicle production rose 5.8 percent following a 0.5 percent decline, the report said. Production of computers and peripheral equipment rose 2.2 percent after a 3.2 percent gain.
Other reports have shown manufacturing is recovering. The Institute for Supply Management’s factory index rose to 54.7 in April, the highest in almost a year, from 50.9 in March. The group’s new orders index, which makes up about a third of the total report, rose to 58.5, the highest since February 2006.
The New York Fed’s general economic index rose for a second month in May.
Spending on equipment and software rose at a 2 percent annual rate in the first quarter, after falling at a 3.1 percent pace the prior three months, according to figures from the Commerce Department.
Foreign automakers are ramping up output at U.S. plants, even as U.S. automakers are trimming production.
Toyota Motor Corp., the world’s second-largest automaker, last month marked the start of production of Camry sedans at an affiliate’s plant in Lafayette, Ind. The plant will produce about 100,000 cars a year for Toyota.
Toyota is raising annual production capacity in North America by about 700,000 vehicles to 2.2 million by 2010 to keep pace with its U.S. sales growth.
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