Bloomberg News

Industrial Production in U.S. Probably Increased in January

February 15, 2012

Feb. 15 (Bloomberg) -- Industrial production accelerated in January, indicating manufacturing will remain at the forefront of the U.S. economic expansion.

Output at factories, mines and utilities rose 0.7 percent, the biggest gain in six months, according to the median estimate of 81 economists surveyed by Bloomberg News. Manufacturing in the New York region picked up this month and homebuilder confidence climbed to the highest level since mid-2007.

Business investment in new equipment and the need to rebuild inventories will probably keep factory assembly lines rolling at the start in 2012. Nonetheless, Europe’s financial crisis and slowing growth in emerging economies like China threaten to temper orders for U.S. goods.

“Manufacturing is growing at a fairly solid pace amid improvements in consumer and business demand,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “One risk is if exports to Europe were to slow further.”

The Federal Reserve will release the production data at 9:15 a.m. in Washington. Estimates in the Bloomberg survey ranged from gains of 0.1 percent to 1.2 percent.

Capacity utilization, which measures the amount of a plant in use, rose to 78.6 percent last month, the highest since July 2008, from 78.1 percent in December, according to economists’ forecasts.

Less Utility Use

The gain in output will probably be tempered by a drop in utility use because January was relatively mild. Last month was the fourth-warmest January on record for the contiguous U.S. states, according to the National Oceanic and Atmospheric Administration.

A rebounding auto industry is contributing to the gains in manufacturing. Purchases of cars and light trucks climbed to an annualized rate of 14.1 million last month, the highest since the so-called cash-for-clunkers program in August 2009 and the second-strongest since May 2008, according to Autodata Corp. Sales averaged 16.4 million in the two years before the last recession began in December 2007.

With the average age of cars and trucks rising to a record 10.8 years, analysts see pent-up demand boosting U.S. sales to a third-straight annual gain in 2012, the longest streak since sales peaked in 2000.

Ford Motor Co., the second-largest U.S. automaker, reported its 11th consecutive profitable quarter as sales rose and it boosted North American production by 14 percent. The Dearborn, Michigan-based company’s U.S. sales rose 11 percent last year. Ford said it sees its European market worsening while Asia- Pacific keeps growing.

Equipment Demand

Manufacturers and exporters of heavy equipment such as Caterpillar Inc. continue to see growth. Caterpillar, the largest construction and mining-equipment maker, last month posted fourth-quarter earnings and forecast full-year profit that topped analysts’ estimates as demand rose for earth-moving machinery and trucks. The Peoria, Illinois-based manufacturer said it had a record $29.8 billion backlog of orders at the end of 2011.

“For many products demand has been above our ability to produce,” Caterpillar spokesman Michael DeWalt told a conference call on Jan. 26. “We have invested in Caterpillar factories in the United States and around the world to increase production.”

Shares of machinery and equipment makers are outpacing the broader market so far this year. The Standard & Poor’s Supercomposite Machinery Index has climbed 19 percent since the end of 2011, compared with a 7.4 percent increase for the S&P 500 Index.

Manufacturing Accelerates

The Institute for Supply Management’s national factory index rose in January to the highest level in seven months, led by gains in new orders and exports, the group said on Feb. 1.

The Federal Reserve Bank of New York’s regional manufacturing index rose to 15 this month from 13.5 in January, economist project another report at 8:30 a.m. will show.

As factories keep expanding, homebuilding is showing signs of stabilizing.

The National Association of Home Builders/Wells Fargo sentiment gauge increased to 26 this month from 25 in January, according to the median estimate of economists surveyed before the 10 a.m. report. Readings lower than 50 mean more respondents still said conditions were poor.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Gail DeGeorge

To contact the reporters on this story: Robert 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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