Industrial production rose in August by the most in six months, indicating U.S. manufacturing will contribute more to the expansion.
Output at factories, mines and utilities climbed 0.4% after no change the prior month, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 85 economists called for a 0.5% advance in August. Manufacturing, which makes up 75% of total production, advanced by the most this year.
The strongest vehicle sales in almost six years are propelling factory activity, encouraging companies such as Ford Motor Co. to boost plant capacity. A pickup in global markets and stronger consumer demand would help spark further progress in the sector that struggled earlier this year.
“Companies have to increase production in order to keep up with demand,” said Brett Ryan, a U.S. economist at Deutsche Bank Securities Inc. in New York, whose firm is the second-best forecaster of production for the past two years, according to data compiled by Bloomberg. “You have an elevated level of unfilled orders, so that bodes well for production.”
Manufacturing in the New York region expanded less than forecast in September even as orders and sales grew at a faster pace, separate data from the Federal Reserve Bank of New York showed. The bank’s general economic index eased to 6.3 from 8.2 last month. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. A gauge of the six-month outlook advanced to the highest level since April 2012.
Stocks advanced after Lawrence Summers withdrew his bid to be the next Fed chairman and America and Russia agreed on a plan to remove Syria’s chemical weapons. The Standard & Poor’s 500 Index rose 0.8% to 1,701.58 at 9:48 a.m. in New York.
Estimates for industrial production in the Bloomberg survey ranged from a drop of 0.1% to an increase of 0.7%.
Manufacturing, which accounts for about 12% of the economy, climbed 0.7% after falling a revised 0.4%. July factory output was previously reported as a 0.1% drop.
Today’s Fed report also showed that capacity utilization, which measures the amount of plants that are in use, increased to 77.8% from 77.6% the prior month.
Utility output decreased 1.5%, the fifth straight drop. Mining production, which includes oil drilling, increased 0.3%.
The output of motor vehicles and parts jumped 5.2% after a 4.5% decrease a month earlier, today’s report showed. Industrial production excluding autos and parts increased 0.2% for a second month.
The automobile industry is bolstering an improved outlook for production in the world’s largest economy. Cars and light trucks sold at a 16 million annualized rate last month, the fastest since November 2007, after 15.7 million in July, figures from Ward’s Automotive Group showed. Sales at General Motors Co., Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. exceeded analysts’ estimates.
Dearborn, Michigan-based Ford Motor Co., the second-largest U.S. automaker, is expanding output of its Fusion sedan, and said its factory in Flat Rock, Michigan, could produce another model as demand grows. The additional shift of 1,400 new workers at the plant will boost Fusion capacity more than 30%.
“We expect the sales momentum to stay here in the U.S. and around the world,” Joe Hinrichs, Ford’s president of the Americas, told reporters on Aug. 29.
Details of the industrial production data released today also showed machinery production rose 0.8%, erasing the decline from a month earlier. Output of construction materials rose 0.3%. Output of computers and electronics increased 1.6%.
Consumer goods production advanced 0.3%, while output of business equipment rose 0.9%.
Texas Instruments Inc., the largest maker of analog chips, is among companies with a brighter outlook as global markets stabilize.
“Orders continue to be quite solid” this quarter, Chief Financial Officer Kevin March said at a Sept. 11 technology conference. “We continue to build backlog, which is a good sign. We continue to see strength in three of the four regions of the world,” with Asia, Japan, and the Americas expanding, he said.
The U.S. economy is projected to grow at a 2% annualized pace in the third quarter after expanding at a 2.5% rate in the prior three months, according to the median estimate of economists surveyed by Bloomberg from Sept. 6 to Sept. 11. A previous survey conducted Aug. 2 to Aug. 6 showed an estimate of 2.3% for the third quarter.