Publication: Bloomberg Businessweek Published Date: 8/17/2010
By Shobhana Chandra - Aug 17, 2010 9:08 AM CT Production in the U.S. rose more than forecast in July, easing concern the industry that led the economy out of the recession is beginning to slow. Production at factories, mines and utilities climbed 1 percent, twice the median forecast in a Bloomberg News survey, figures from the Federal Reserve showed today. Factory output rose 1.1 percent last month, led in part by auto making. The report also showed business investment in new equipment kept growing at the start of the second half of 2010 as American factories churned out more computers and electronics. At the same time, a slowdown in consumer spending will reduce the need to rebuild inventories, while cooling growth overseas may limit exports, meaning the pace of industrial expansion may moderate. “We’re seeing decent growth in manufacturing but anticipate that the pace will gradually slow down as we move forward,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York. “We’ll continue to have positive economic growth. It’ll be a modest recovery, with slack resources and downward pressure on inflation.” Economists had forecast a 0.5 percent gain in overall production, according to the median estimate in a Bloomberg News survey. June output fell a revised 0.1 percent. U.S. Treasury securities remained lower after the report and stocks rose. The 10-year Treasury note dropped, pushing up the yield to 2.61 percent at 10:04 a.m. in New York from 2.56 percent late yesterday. The Standard & Poor’s 500 Index gained 0.8 percent to 1,087.61. Other reports today showed housing starts rose less than forecast last month and producer prices climbed for the first time since March. Motor Vehicles Production Manufacturing got a boost from automobile production as fewer factories were shut for mid-year retooling. Output of motor vehicles and parts surged 9.9 percent in July after falling 2.5 percent a month earlier. Excluding autos and parts, manufacturing increased 0.6 percent after declining 0.3 percent. Estimates of the 74 economists surveyed by Bloomberg News for industrial production ranged from no change to an increase of 1.2 percent. Factory output makes up 75 percent of the total. Capacity utilization, which measures the amount of a plant that is in use, increased to 74.8 percent last month from 74.1 percent. The gauge is still below the average of 80 percent over the past 20 years, signaling inflation remains low. Utility output increased 0.1 percent, after a 2.3 percent jump the prior month. Mining production, which includes oil drilling, rose 0.9 percent. 2009 Shutdowns Automakers kept factories open last month as they recovered from the recession. Chrysler Group LLC slashed production by half in 2009, and General Motors Co. cut output by 44 percent as the companies went through bankruptcy and extended summer plant shutdowns. Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, lowered output 16 percent, according to J.D. Power & Associates. This year, GM kept most of its U.S. plants open during the traditional shutdowns, a move that economists said propelled auto output last month. At the same time, automakers aren’t going to charge ahead in coming months. Dearborn, Michigan-based Ford has no plans to increase production of any of its current models because demand is fragile in the weak economic recovery, George Pipas, the automaker’s sales analyst, said in an interview this month. The deceleration at factories continued this month, according to regional figures released yesterday. Manufacturing in the New York area expanded less than forecast in August as orders and sales fell for the first time in more than a year. Business Equipment Consumer goods production climbed 1.1 percent. Production of business equipment increased 1.8 percent after a 0.5 percent gain. Output of computers and electronic products rose 1.1 percent. Cisco Systems Inc., the world’s largest maker of networking equipment, last week forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy. Still, “we’re not making a call on the economy going down,” Chambers said Aug. 11 on a conference call. “I think the probabilities on a double dip, or whatever you want to call it, are relatively low.” Fed policy makers, who on Aug. 10 renewed a pledge to hold interest rates near zero, said they will maintain their holdings of securities to prevent money from being drained out of the financial system, their first attempt to bolster the economy in more than a year. “The pace of recovery in output and employment has slowed in recent months,” central bank officials said in a statement following their meeting. The “economic recovery is likely to be more modest in the near term than had been anticipated.” View entire article.
Production in the U.S. rose more than forecast in July, easing concern the industry that led the economy out of the recession is beginning to slow.
Production at factories, mines and utilities climbed 1 percent, twice the median forecast in a Bloomberg News survey, figures from the Federal Reserve showed today. Factory output rose 1.1 percent last month, led in part by auto making.
The report also showed business investment in new equipment kept growing at the start of the second half of 2010 as American factories churned out more computers and electronics. At the same time, a slowdown in consumer spending will reduce the need to rebuild inventories, while cooling growth overseas may limit exports, meaning the pace of industrial expansion may moderate.
“We’re seeing decent growth in manufacturing but anticipate that the pace will gradually slow down as we move forward,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York. “We’ll continue to have positive economic growth. It’ll be a modest recovery, with slack resources and downward pressure on inflation.”
Economists had forecast a 0.5 percent gain in overall production, according to the median estimate in a Bloomberg News survey. June output fell a revised 0.1 percent.
U.S. Treasury securities remained lower after the report and stocks rose. The 10-year Treasury note dropped, pushing up the yield to 2.61 percent at 10:04 a.m. in New York from 2.56 percent late yesterday. The Standard & Poor’s 500 Index gained 0.8 percent to 1,087.61.
Other reports today showed housing starts rose less than forecast last month and producer prices climbed for the first time since March.
Motor Vehicles Production
Manufacturing got a boost from automobile production as fewer factories were shut for mid-year retooling. Output of motor vehicles and parts surged 9.9 percent in July after falling 2.5 percent a month earlier. Excluding autos and parts, manufacturing increased 0.6 percent after declining 0.3 percent.
Estimates of the 74 economists surveyed by Bloomberg News for industrial production ranged from no change to an increase of 1.2 percent. Factory output makes up 75 percent of the total.
Capacity utilization, which measures the amount of a plant that is in use, increased to 74.8 percent last month from 74.1 percent. The gauge is still below the average of 80 percent over the past 20 years, signaling inflation remains low.
Utility output increased 0.1 percent, after a 2.3 percent jump the prior month. Mining production, which includes oil drilling, rose 0.9 percent.
2009 Shutdowns
Automakers kept factories open last month as they recovered from the recession. Chrysler Group LLC slashed production by half in 2009, and General Motors Co. cut output by 44 percent as the companies went through bankruptcy and extended summer plant shutdowns. Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, lowered output 16 percent, according to J.D. Power & Associates.
This year, GM kept most of its U.S. plants open during the traditional shutdowns, a move that economists said propelled auto output last month.
At the same time, automakers aren’t going to charge ahead in coming months. Dearborn, Michigan-based Ford has no plans to increase production of any of its current models because demand is fragile in the weak economic recovery, George Pipas, the automaker’s sales analyst, said in an interview this month.
The deceleration at factories continued this month, according to regional figures released yesterday. Manufacturing in the New York area expanded less than forecast in August as orders and sales fell for the first time in more than a year.
Business Equipment
Consumer goods production climbed 1.1 percent. Production of business equipment increased 1.8 percent after a 0.5 percent gain. Output of computers and electronic products rose 1.1 percent.
Cisco Systems Inc., the world’s largest maker of networking equipment, last week forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy.
Still, “we’re not making a call on the economy going down,” Chambers said Aug. 11 on a conference call. “I think the probabilities on a double dip, or whatever you want to call it, are relatively low.”
Fed policy makers, who on Aug. 10 renewed a pledge to hold interest rates near zero, said they will maintain their holdings of securities to prevent money from being drained out of the financial system, their first attempt to bolster the economy in more than a year.
“The pace of recovery in output and employment has slowed in recent months,” central bank officials said in a statement following their meeting. The “economic recovery is likely to be more modest in the near term than had been anticipated.”