Industrial Production Up For 1st Time In 9 Months

WASHINGTON — Production from the nation's factories, mines and utilities rose more than expected in July, with the first gain in nine months driven by increased output from auto companies.

The increase provides more evidence that the worst recession since World War II is easing. It marks only the second gain in industrial production since the downturn began in December 2007.

The Federal Reserve said Friday that production rose 0.5 percent in July, after falling 0.4 percent in June. Economists expected a 0.3 percent increase, according to Thomson Reuters.

Automakers led the rebound, as the production of motor vehicles and parts rose 20.1 percent, after falling for three straight months.

General Motors and Chrysler last month reopened many plants that had been closed in May and June as the companies restructured and emerged from bankruptcy protection.

Sales also jumped in response to the government's Cash for Clunkers program, which provides consumers up to $4,500 for trading in old cars. Auto sales clocked in at a seasonally adjusted annual rate of 11.2 million in July, up from 9.7 million in June.

Ford Motor Co. said Thursday that it will increase production in response to the program. The company said it will boost third-quarter production to 18 percent above last year's levels, and fourth-quarter production 33 percent.

Production also rose in other areas, according to the Fed. Excluding autos, manufacturing output rose 0.2 percent, as companies produced more aerospace equipment, computers and electronic products, and plastics.

Mining output increased 0.8 percent. Utility output fell 2.4 percent, however, due to mild weather, the Fed said.

Industrial production likely will remain healthy for the rest of the year as companies restock depleted inventories, said Joshua Shapiro, chief U.S. economist for MFR Inc. But a longer-term rebound will depend on greater consumer demand.

"On that score, we believe that the recovery process will be subdued and uneven," Shapiro wrote in a note to clients.

Many economists were disappointed by a report Thursday that retail sales fell 0.1 percent in July, indicating that consumers remain cautious.

Despite July's increase, total industrial production is down 13.1 percent from a year ago.

And many factories remain idle. The operating rate for the nation's mines, plants and utilities was 68.5 percent in July, up from a record low of 68.1 percent in June. The rate is usually around 80 percent in a healthy economy.

The recession has taken a bite out of demand in the U.S. for all kinds of manufactured goods, especially those related to housing, such as appliances and building materials.

Production of appliances dropped 0.8 percent in July, while construction supplies fell 0.1 percent, according to the Fed.

Many manufacturers also have suffered from a drop in overseas sales, as foreign economies plunged into recession.

But that may be changing, as many European and Asian countries show signs of growing again. On Wednesday, the Commerce Department reported that U.S. exports rose for the second straight month.

Large gains in shipments of semiconductors, civilian aircraft and engines, and telecommunications equipment led the export increase, the department said.

Comments

[Harrier]

09:56 AM on 08/17/2009

Unfortunately, 70% of the economy is driven by US consumers buying. And while the next quarter is expected show an increase in GDP, the fact is retail sales were off, despite the cash for clunkers. We are also expected to see more bank bankruptcies. Unemployment is expected to actually increase, not decrease over the next 6 months. As good as you see the banks are looking, there are still $800 Billion in bad loans that banks have not been written down.

There are two statistics in factoring unemployment rates. Household survey report and payroll. When people stop actively looking, that reduces unemployment rates. So the unemployment rate could be a result of people giving up looking for jobs.

On the positive sides, it appears Germany and France showed strong growth during the second quarter. Asian countries are also starting to see growth, If people begin to think the US economy is improving, more US workers will start actively looking for work that weren't...That will make the unemployment rate start to spike.

Only the Obama administration knows if the lower unemployment rate is a result of fewer job losses or few unemployed looking for work. My feeling is if you can survive keeping a job over the next 6 months, you will have a lot better chance of keeping it for the next few years. If you already unemployed, you may not notice anything has changed and think it's worse in 6 months from now.

[oddjob1138]

06:17 PM on 08/15/2009

Well, at least Cap and Trade didn't get passed so this piece of good economic news could come to be in these tough times.

[marijam]

08:06 AM on 08/15/2009

Now that the clunker program allows potential buyers to order a car that isn't on the car lot, we should continue to see increases in production.

[nanny138]

07:12 AM on 08/15/2009

Looks like ECRI was right about recovery starting this summer:
http://www.businesscycle.com/news/press/1406/

Reuters quotes ECRI saying strongest recovery since early 80s:
http://www.reuters.com/article/marketsNews/idUSNYS00531420090814

[Sara Wood]

08:10 PM on 08/14/2009

The economy seems to be improving.

[olephart]

07:02 PM on 08/14/2009

This is about the only good piece of economic news recently that wasn’t fabricated by the Government. For those following other industrial measures this increase though small is sound. Industrial output should as stated continue to slowly increase or at least hold its own. The salient point was the 13% drop year over year. This coincides with the 10% personal spending drop YOY. An examination of personal spending for the past few months yield’s a flat line 10% below the two year ago trend. At least for now we can look forward to simply a reduced economy 10% down from two years ago with high unemployment and wage stagnation. This is the bright side. Some help may be in the offing from exports as other economies, not burdened by a trillion dollar per year Military Empire to support and a Wall Street to feed, rebound and grow. Jobs will continue to be lost, hopefully at a reduced pace and home prices will fall a little further. Some big negatives are a collapsing commercial real estate market, more bank failures, toxic assets that remain on the books of large institutions and of course a Government that is so insolvent that a failed bank looks like a mountain of gold.

[loki]

04:57 PM on 08/14/2009

an increase in nothing, is still nothing. right?

[tompoe]

02:07 PM on 08/14/2009

Shutter enough factories, and production ceases to exist. Sorry. Maybe I missed the point of the article.

[WindySailor]

01:47 PM on 08/14/2009

I understand the printing industry has seen a big upswing - cranking out "hand-painted" signs for teabaggers and anti-healthcare protestors.