Industrial production in the U.S. was unchanged in July as a slowdown at factories overshadowed an increase in mining.
The reading for output at factories, mines and utilities followed a 0.2% gain the prior month that was smaller than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 82 economists called for a 0.3% rise in July. Manufacturing, which makes up 75% of total production, declined for the first time in three months.
Production may rebound as low interest rates spur sales of new cars and homes, benefiting companies from General Motors Co. to United Technologies Corp. The Fed report contrasts with data from the Institute for Supply Management indicating manufacturing grew in July at the fastest rate in more than two years.
“It’s a weak start to the quarter for industrial production, but I wouldn’t worry about one data point,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said before the report. “Other reports show manufacturing had a pretty solid month. Demand is starting to pick up. We’re setting up for a stronger second half for the economy.”
Manufacturing in the New York region expanded less than forecast in August, separate data from the Federal Reserve Bank of New York showed. The bank’s general economic index fell to 8.2 from 9.5 last month. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 50 economists called for a reading of 10.
Other reports today showed initial claims for unemployment benefits fell last week to the lowest level since October 2007, and the cost of living rose in July for a third month, supporting the Fed’s forecast that inflation will move closer to its target.
Estimates for industrial production in the Bloomberg survey ranged from a drop of 0.3% to an increase of 0.9%. The prior month was previously reported as a gain of 0.3%.
Manufacturing, which accounts for about 12% of the economy, declined 0.1% after rising 0.2%.
Today’s Fed report also showed that capacity utilization, which measures the amount of plants that are in use, fell to 77.6% from 77.7% the prior month.
Utility output fell 2.1%, the fourth straight drop. Mining production, which includes oil drilling, increased 2.1%.
The output of motor vehicles and parts decreased 1.7% after a 1.2% gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing was unchanged after a 0.1% increase.
Even so, the automobile industry is underpinning an improved longer-term outlook. Cars and trucks sold at a 15.7 million annualized rate last month after a 15.8 million pace in June, the strongest back-to-back readings since the end of 2007, figures from Ward’s Automotive Group showed. GM, Ford Motor Co., Chrysler Group LLC, and Honda Motor Co. are among carmakers that plan to boost capacity.
Details of the industrial production data released today also showed machinery production fell 1% after rising 1.5%, and construction materials rose 0.5% for the second month. Output of computers and electronics fell 0.1%.
Consumer goods production dropped 0.5%, while output of business equipment was unchanged.
Orders in the U.S. are improving going into the second half, said Louis Chenevert, chairman and chief executive officer of United Technologies, the Hartford, Connecticut-based maker of Pratt & Whitney engines and Otis elevators.
“The housing market, for example, for us has been robust this year,” Chenevert said at an Aug. 13 conference. “When you sell furnaces in June, July, it’s a good sign. That means there is new construction.”
In addition, “Europe looks like it’s maybe bottomed out. China continues to be robust for us. India offers us some nice opportunity,” along with South America and Russia, he said.
The euro-area economy emerged from a record-long recession in the second quarter, led by Germany and France. Gross domestic product in the 17-nation euro area rose 0.3% in the April-June period after a 0.3% contraction in the prior three months, the European Union’s statistics office in Luxembourg said yesterday.
The U.S. economy may expand at a 2.3% annualized pace in the third quarter, after growing at a 1.7% rate in the prior three months, according to a Bloomberg survey of economists from Aug. 2 to Aug. 6.
Retail sales rose in July for a fourth consecutive month, showing American households are regaining momentum as employment climbs. Purchases of new U.S. homes rose in June to the highest level in five years, signaling gains in residential construction that will support production of related goods, from furniture to appliances.