Bloomberg News

U.S. Industrial Production Rose 0.1% in May After No Change

June 15, 2011

(Updates with markets in sixth paragraph.)

June 15 (Bloomberg) -- Industrial production in the U.S. rose less than forecast in May, restrained by a slump in utility output and shortages of auto parts from Japan.

Output at factories, mines and utilities rose 0.1 percent after no change the prior month, figures from the Federal Reserve showed today. Economists projected a 0.2 percent gain, according to the median estimate in a Bloomberg News survey. Factory production climbed 0.4 percent, led by the biggest gain in business equipment output in four months.

Manufacturing may pick up in coming months as disruptions of parts supplies ease after the earthquake and tsunami in Japan. Overseas demand and business spending may also spur sales of U.S.-made equipment and technology, helping bolster the industry that’s been a mainstay of the recovery.

“Production levels will likely drag along through June and we’re likely to see more of a rebound in July and August,” Harm Bandholz, chief U.S. economist at Unicredit Group in New York, said before the report. “We will see some moderate acceleration in growth in the second half.”

Figures from the Fed today showed manufacturing in New York state unexpectedly contracted this month. The so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut, dropped to minus 7.8, the lowest since November, from 11.9 in May. Readings less than zero signal contraction.

Stocks fell after the reports, with the Standard & Poor’s 500 Index declining 0.9 percent to 1,276.01 at 9:32 a.m. in New York. Treasuries rose, pushing down the yield on the benchmark 10-year note to 3.07 percent from 3.10 percent late yesterday.

Consumer Prices

The Labor Department said today that the consumer-price index increased 0.2 percent in May. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent, the most since July 2008.

Forecasts for industrial production in May ranged from a drop of 0.4 percent to a gain of 0.6 percent, according to the Bloomberg survey of 79 economists.

Factory output, which makes up 75 percent of the total, climbed 0.4 percent, while production of automobiles and parts fell 1.5 percent, the Fed report showed. Excluding autos, manufacturing rose 0.6 percent, the strongest gain this year.

Production of business equipment jumped 1.2 percent after a 0.3 percent decrease. Output of computers and electronic products rose 1.4 percent after no change.

Capacity Utilization

Capacity utilization, which measures the amount of a plant that is in use, held at 76.7 percent in May. The gauge compares with the average of 79.5 percent over the past 20 years.

Mining production, which includes oil drilling, increased 0.5 percent. Utility output dropped 2.8 percent after a 2.4 percent gain a month earlier.

Cars and light trucks sold at an 11.8 million annual rate in May, the slowest in eight months and down from a 13.1 million pace for April, according to researcher Autodata Corp.

Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami disrupted supplies. With inventories running low, companies offered smaller discounts, which also deterred buyers.

Motor-vehicle assemblies rose to 7.88 million units in May, the second-lowest this year, today’s report showed.

‘Slower Recovery’

“It’s a slower recovery, but we were in the deepest hole we’ve ever been in,” Ford Chief Executive Officer Alan Mulally said in a June 7 Bloomberg Television interview. “The slope that we’re on, with a 2 to 3 percent expansion this year and increasing next year, is very reasonable growth.”

Manufacturing, which accounts for about 12 percent of the economy, is likely to keep bolstering economic growth as a 14 percent drop in the dollar against the currencies of major trading partners in the past year makes American-made goods more attractive abroad.

“The low dollar means we can export, so we are actually fundamentally growing globally from the U.S.,” Andrew Liveris, president and chief executive officer at Dow Chemical Co., said during a June 2 conference call. “We see strong growth drivers in emerging regions. China is the locus of growth.”

Moline, Illinois-based Deere & Co., the world’s largest maker of farm equipment, said on May 18 that earnings will be $2.65 billion in the fiscal year through October, more than the $2.5 billion forecast in February.

Deere & Co.

The manufacturer’s forecast includes a negative impact of about $300 million in sales and $70 million in operating profit because of disruptions from Japan. Global demand for agriculture and construction equipment will drive profits, the company said.

Recent data have pointed to slowing growth at factories and the economy. The Institute for Supply Management’s manufacturing index fell more than projected in May to the lowest level since September 2009, while factory payrolls fell in May and overall job growth was the slowest in eight months.

“Manufacturing activity continued to expand in most parts of the country, though a number of Districts noted some slowing in the pace of growth,” the Fed said last week in its Beige Book report covering April and May.

The U.S. economy began 2011 on a weaker note, growing at a 1.8 percent annual rate in the first three months of this year after expanding at a 3.1 percent pace in the fourth quarter, according to Commerce Department figures.

--Editors: Chris Wellisz, Vince Golle

Company News: DOW US <Equity> CN

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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