BLBG: Production Jumps as U.S. Factories Lead Recovery
By Shobhana Chandra
April 15 (Bloomberg) -- Manufacturing production in the U.S. accelerated in March as factories spearheaded the recovery from the worst recession since the 1930s.
Output at factories climbed 0.9 percent after a 0.2 gain in February that was revised from a previously estimated decline, Federal Reserve figures showed today. Warmer weather caused utility use to drop by the most in four years, limiting the overall gain in industrial production to 0.1 percent, less than anticipated.
Companies may keep rebuilding depleted inventories and investing in new equipment as global demand rises, one reason why producers like Intel Corp. see better times ahead. Payrolls will probably climb further as factories ramp up, helping drive consumer spending.
“Manufacturing is doing pretty well, it is still very much in the lead,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The momentum is carrying on into the second quarter as well. Capital spending, which was already strong at the end of the 2009, is continuing into this year, and that’ll support the recovery.”
Other reports showed manufacturing in the New York region expanded in April at a faster pace than anticipated, while jobless claims unexpectedly rose last week.
Stocks dropped after reaching an 18-month high yesterday. The Standard & Poor’s 500 Index fell 0.1 percent to 1,209.59 at 9:42 a.m. in New York. Treasury securities also decreased, sending the yield on the benchmark 10-year note up to 3.89 percent from 3.86 percent late yesterday.
Less Than Forecast
Industrial production was forecast to increase 0.7 percent after a previously reported 0.1 percent gain in February, according to the median estimate of 78 economists surveyed by Bloomberg News. Projections ranged from 0.3 percent to 1.2 percent.
Manufacturing accounts for about 12 percent of the U.S. economy.
The Fed Bank of New York’s general economic index climbed to 31.9, a ninth consecutive month of growth, from 22.9 in March. Readings greater than zero signal expansion in the so- called Empire State Index that covers New York, northern New Jersey and southern Connecticut.
A Labor Department report showed the number of Americans filing claims for jobless benefits unexpectedly rose by 24,000 to 484,000 last week, indicating the improvement in the labor market will take time to unfold. A government spokesman said the jump was due more to administrative factors reflecting volatility around Easter than because of economic reasons.
Factory output, which accounts for about four-fifths of industrial production, increased for a third consecutive month.
Utility Slump
Utility production plunged 6.4 percent, the biggest decline since January 2006, after being unchanged in February. “After a relatively cold February, demand for heating fell in March as temperatures climbed to above-normal levels,” the report said.
Mining output, which includes oil drilling, increased 2.3 percent after a 1.7 percent February gain.
Motor vehicle and parts production advanced 2.2 percent following a 3.9 percent drop the prior month, the report said.
Production of consumer durable increased 2 percent, reflecting gains in automobiles, furniture and electronics.
Output of business equipment increased 1.4 percent as demand for computers, communications equipment and semiconductors climbed, showing capital investment is climbing.
Intel, the world’s biggest chipmaker, is among companies benefiting from rising demand. The Santa Clara, California-based producer this week forecast record profit margins for the year and said sales will rise this quarter after a 44 percent gain in the first three months of the year.
‘Big Driver’
Consumers served as a “big driver” of computer demand and corporate executives, more confident about their outlook, are replacing aging machinery, Chief Executive Officer Paul Otellini told analysts on an April 13 conference call. “We are optimistic about the prospects of our business for 2010 and beyond.”
Capacity utilization, or the proportion of plants in use, rose to 73.2 from 73 percent in February.
Industrial capacity utilization was estimated to rise to 73.3 percent, according to the Bloomberg survey median. The rate averaged 81 over the past four decades.
Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.
Excess capacity is one reason Fed policy makers see little risk of inflation. Fed Chairman Ben S. Bernanke yesterday said the rate of increase in consumer prices was “subdued,” and said “moderation in inflation has been broadly based.” He also said economic growth will remain “moderate” as the economy contends with weak construction spending and high unemployment.
