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Auto Industry's Output Falls As Manufacturing Growth Flatlines

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MANUFACTURING FLATLINES

WASHINGTON -- U.S. auto factories produced fewer goods in June than the previous month, and overall factory production was flat. It marked the third straight month of weak output slowed by supply chain disruptions caused by the Japan crisis.

The Federal Reserve reported Friday that factory production was unchanged last month following a tiny 0.1 percent rise in May. The May data were revised down from an initial 0.4 percent increase.

Auto production fell 2.0 percent in June, after declines in May and April. U.S. automakers have had trouble getting component parts out of Japan in the months after the March 11 earthquakes and tsunami.

Overall industrial production was up 0.2 percent in June. Gains in mining and utilities offset the declines in the factory sector. Industrial production has risen nearly 11.5 percent since a recession low in June 2009. But even with the gains, it remains 7.6 percent below its pre-recession peak reached in September 2007.

Stocks were mixed in early-morning trading. The Dow Jones industrial average dropped 15 points, the S&P 500 was flat, and the Nasdaq composite index made modest gains.

A separate report showed that manufacturing activity in the New York region remained subdued. The New York Federal Reserve's Empire State manufacturing index posted a negative 3.76 reading.

Still, it was better than the negative 7.79 reading in June. Peter Newland, an economist at Barclays Capital Research, said the modest improvement suggests manufacturing should rebound in the July-September quarter "following the temporary hit to auto production" stemming from the Japan supply disruptions.

The auto parts shortage is having a direct impact on consumers. The Labor Department reported that Americans paid more for cars, clothing and hotel stays in June. Overall inflation fell for the first time in a year, but only because of a steep drop in gasoline prices. So-called core prices, which exclude volatile food and energy costs, rose.

Factory output was up at an annual rate of just 0.2 percent for the April-June quarter, the weakest showing for any quarter since the recession ended two years ago. Auto production is largely dragging down the overall sector. Autos and parts production fell at an annual rate of 16.4 percent in the April-June quarter. That followed a 29.2 percent gain in the previous three months.

U.S. manufacturers in the auto and electronics industries depend on Japanese companies for component parts.

In congressional testimony this week, Federal Reserve Chairman Ben Bernanke said he expected factory output to rebound in coming months as the supply disruptions ease.

Manufacturing has been one of the strongest areas of the economy since the recession ended in June 2009. U.S. factories have seen a boost from rising domestic and strong growth in exports. A weaker dollar, which makes U.S. goods more competitive overseas, has fueled foreign demand.

Factory activity expanded at a faster rate in June than in May, according to the Institute for Supply Management's closely watched manufacturing index.

Still, the economy is growing at too weak a pace to drive down the high unemployment rate, which rose to 9.2 percent in June. Most economists forecast that growth was roughly 2 percent in the first half of the year.

The economy would need to grow 5 percent for a whole year to bring down the unemployment rate by one percentage point. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

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