Industrial production rose in June by the most in four months, signaling U.S. manufacturing is improving heading into the second half of the year.
Output at factories, mines and utilities climbed 0.3%, the biggest advance since February, after being little changed in May, a Federal Reserve report showed today in Washington. The gain matched the median forecast of 86 economists surveyed by Bloomberg. Manufacturing, which makes up 75% of total output, increased more than projected.
Lean inventories and increased automobile sales are helping to offset softer overseas markets this year and the effects of broad U.S. government budget cuts and higher taxes. A pickup in demand and sustained production gains would help bolster expansion in the world’s largest economy.
“Manufacturing has been kind of a slow grind,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who correctly projected the gain in production. “We expect activity to pick up over the second half of the year. It’s not going to be gangbusters growth, but it’s at least going to be better than what we saw over the last two to three months.”
Estimates in the Bloomberg survey ranged from drop of 0.2% to an increase of 0.7%.
The cost of living rose in June by the most in four months as gasoline prices increased, a sign inflation is advancing toward the Federal Reserve’s goal, another report today showed. The consumer-price index increased 0.5% after a 0.1% gain the prior month, according to Labor Department figures. The median forecast in a Bloomberg survey called for a 0.3% rise.
Stocks fell as investors watched earnings from Coca-Cola Co. to Goldman Sachs Group Inc. The Standard & Poor’s 500 Index declined 0.1% to 1,680.32 at 9:46 a.m. in New York after closing at a record yesterday.
Manufacturing, which accounts for about 12% of the economy, increased 0.3%, also the best performance in four months, after a 0.2% rise in May that was larger than previously estimated. Economists projected a 0.2% increase, according to the Bloomberg survey median.
Production of machinery, including computers and electronic products, increased 1.5% last month after dropping 0.7% in May. Applied Materials Inc., the largest seller of machinery used in the production of semiconductors and flat- screen displays, expects industry spending to pick up next year as chipmakers boost output to meet demand for mobile-device parts.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.