Industrial production rose more than forecast in February as U.S. factories turned out more business equipment and motor vehicles, showing manufacturing is helping boost the economy.
Output at factories, mines and utilities climbed 0.7%, the most in three months and exceeding the median projection in a Bloomberg survey, figures from the Federal Reserve showed today in Washington. January production was unchanged, revised from a previously reported 0.1% drop. Manufacturing, which accounts for about 75% of industrial output, advanced 0.8%, the third gain in the last four months.
Resilient consumer demand, increased capital spending and lean inventories are spurring the pace of work on assembly lines at companies such as Texas Instruments Inc. Sustained production gains will be a source of strength for the world’s largest economy that is facing the hurdle of government budget cuts.
“Manufacturing is accelerating again,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said before the report. O’Sullivan is the second-best forecaster of industrial production for the past two years, according to data compiled by Bloomberg. “This certainly suggests good momentum ahead of the sequester, and more ability to withstand whatever drag there is from the sequester.”
Another report today showed factories in the New York region expanded for a second month in March. The Federal Reserve Bank of New York’s general economic index eased to 9.2, from 10 in February. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut.
Estimates for February industrial production from the 83 economists surveyed by Bloomberg ranged from a drop of 0.1% to an increase of 1%. Utility output rose in February, while mining decreased for a third straight month.
The pickup in manufacturing, which accounts for about 12% of the economy, followed a revised 0.3% decrease in January. In December, factory output climbed 1.3% after a 1.7% jump the previous month.
The February output of motor vehicles and parts increased 3.6% after a 4.9% drop a month earlier, today’s report showed. Factory output excluding autos and parts climbed 0.6% after rising 0.1% and 1.1% in the previous two months.
General Motors Co. and Ford Motor Co. project automobile sales, on pace for the best year since 2007, will remain resilient. Cars and light trucks sold at a 15.3 million annual rate in February after 15.2 million a month earlier, according to data from Ward’s Automotive Group.
Today’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, increased to 79.6% in February from 79.2% a month earlier.
Utility output increased 1.6% after jumping 4.9% the prior month.
Mining production, which includes oil drilling, decreased 0.3% after falling 1% the prior month.
The breakdown of the manufacturing figures showed a 2.5% gain in production of business equipment, the biggest advance in three months. Output of construction materials and business supplies also increased in February.
Other recent reports show manufacturing is building on recent gains after a slowdown in the second half of 2012. The Institute for Supply Management’s factory gauge rose to 54.2 in February, the highest since June 2011. The gauge has advanced for the last three months.
The average factory workweek close to a record high may mean manufacturing managers may have to hire more to keep up pace with demand. Manufacturers logged an average of 41.9 hours a week in February, tying December 1997 and January 1998 as the most since 1944, when full wartime production was pulling more women into factories, according to Labor Department data. The record was 45.4 hours in January and February 1944.
The same report from the Labor Department last week showed private payrolls grew by 246,000 last month, the most since November, bringing the average gain over the past six months to more than 200,000. The unemployment rate fell to 7.7%, a four-year low.
Texas Instruments, the largest maker of analog chips, earlier this month raised the lower end of its forecasts for first-quarter sales and profit.
“The stronger demand environment that we discussed back in January has continued through the quarter and overall tracking better than our initial expectation, so we see this in our revenue trend and even more so in our orders as we’re now building backlog for the first time in several quarters,” Ron Slaymaker, vice president at Dallas-based Texas Instruments, said on a March 7 conference call.
“We have increased production starts this quarter to support the higher level of anticipated demand we have for the second quarter,” Slaymaker said.