U.S. industrial production rises in sign of factory resilience

Industrial production in the U.S. increased in June, led by gains among automobile and machinery makers that signal manufacturing is boosting economic growth.

Output at factories, mines and utilities rose 0.4 percent last month after a revised 0.2 percent drop in May that was larger than previously reported, Federal Reserve data showed today in Washington. Economists forecast a 0.3 percent gain, according to the Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production, rose 0.7 percent last month, reversing the prior month’s decline.

The pickup in manufacturing may temper concerns of a bigger slowdown in the industry that has spearheaded the three-year-old expansion. At the same time, factories face the challenges of a weakening global economy and an American consumer hobbled by 8.2 percent unemployment and stagnant income growth.

“Manufacturing looked decent in June,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, said before the report. “The risk is from the uncertainty over the global economic outlook and, more recently, the fiscal situation in the U.S., which means companies will meet demand more and more by drawing down inventories.”

Projections from the 81 economists ranged from a decline of 0.8 percent to an increase of 0.9 percent. May’s industrial production figure was previously reported as a 0.1 percent drop.

The cost of living was little changed in June, underscoring Federal Reserve expectations that inflation will remain under control, another report today showed.

Inflation Tame

No change in the consumer-price index followed a 0.3 percent drop in May, according to Labor Department data. The measure matched the median forecast of economists in a Bloomberg survey. The so-called core measure that excludes volatile food and fuel costs rose 0.2 percent for a fourth month.

The Fed’s production report showed motor vehicle output climbed 1.9 percent in June after a 2.2 percent decrease the month before. Machinery output increased 2.3 percent following a 0.5 percent decrease.

Autos, a recent source of manufacturing strength, sold at a 14.1 million annual rate in June, up from the 13.7 million rate in May that was the weakest this year, according to data from Ward’s Automotive Group.

Factory output excluding production of vehicles and parts climbed 0.6 percent after dropping 0.5 percent. Output of business equipment increased 1.6 percent after a 0.1 percent gain in May.

Utilities, Mining

Utility production dropped 1.9 percent last month after jumping 2.8 percent in May. Mining output increased 0.7 percent being unchanged the prior month.

Today’s report also showed that capacity utilization, which measures what portion of a plant is producing, increased to 78.9 percent from 78.7 percent in May. It has averaged 80.7 percent since records began in 1967.

Figures released earlier this month showed manufacturers curbed production in June. The Institute for Supply Management’s manufacturing index, a national barometer of factory strength, unexpectedly shrank, the first contraction in three years. The index’s measure of orders, production and export demand also dropped to three-year lows.

“The economic and political headwinds we’ve been facing, particularly in Europe have not been easy to overcome,” Joseph Gingo, chairman and chief executive officer of plastics-maker A Schulman Inc., said during a July 10 earnings call. “I don’t see the economic climate for a while improving, dramatically at least. And I think a lot of people are going to become stressed as they were in 2009.”

At the same time, figures on manufacturing employment show the industry hiring. An index of aggregate weekly hours worked by factory employees rose in June to 87.6 from 87.3 the prior month, the second highest reading in more than three years, according to the Labor Department.