Factory output rises on demand
Monday, October 17, 2011
WASHINGTON (AP) — U.S. factories produced more goods in September for a third straight month, the latest signal that the economy is rebounding from its summer slump.
They made more airplanes, trucks and home electronics last month to meet rising demand, the Federal Reserve said Monday.
The 0.4 percent increase in factory output followed other promising signs in September. Hiring increased slightly, and retail sales grew by the most in seven months.
Economists say the brighter data suggest the July-September quarter is shaping up to be better than first thought. While few are predicting the kind of steady growth needed to significantly lower the unemployment rate, many are less convinced that the economy is on the verge of another recession.
“After taking such an amazing punch to the gut in August, the U.S. economy across the board seems to have rebounded well in September,” said Ellen Zentner, an economist with Nomura Securities Inc.
Overall industrial production edged up 0.2 percent last month after being unchanged in August. Utility output decreased sharply, while mines continued to produce more.
Auto output increased for a third straight month, home electronics production for a fifth.
Zentner said Monday’s report supports her forecast that economy grew at an annual rate of 2.7 percent in the third quarter. That’s well above the 0.9 percent growth in the first half of the year, the weakest since the recession ended more than two years ago.
Investors appeared to be more concerned about Europe after the German government played down hopes that a solution to the debt crisis was imminent. The Dow Jones industrial average dropped more than 164 points in midday trading. Broader indexes also declined.
The European debt crisis still threatens the U.S. economy. But Zentner said the U.S. economy is showing “amazing resilience in the face of that uncertainty.”
U.S. industrial production has increased 12.8 percent since June 2009. It remains 5.8 percent below its recent peak, reached in September 2007.
A key reason for the factory growth is that businesses are investing more in equipment. Production of business equipment rose 1 percent in September, the third straight increase of 1 percent or more.
Strong demand for business equipment matched other reports that showed companies are sticking with their investment plans, despite slow growth and weak consumer spending. In August, businesses ordered more machinery, computers and communication equipment and shipments of those products also increased, the government said last month.
A separate regional survey from the Fed Monday showed that manufacturing in the northeast region continued to contract. But many economists played down the overall decrease, largely because measures of new orders, shipments and hiring all turned from negative to positive in the October survey.
Manufacturing played a crucial role in the early stages of the recovery. Factories were among the first businesses to start growing after the recession officially ended in June 2009.
However, manufacturing slowed this spring. Consumers cut back on purchases in the face of higher prices for gas and food. And the March earthquake in Japan disrupted supply chains, which slowed U.S. auto production.
Manufacturers cut 13,000 jobs in September and 4,000 in August, according to government data. The average length of a factory worker’s week declined as well.
High unemployment threatens President Barack Obama’s re-election prospects nearly a year before the 2012 election. On Monday, he pressed Congress to pass pieces of his $447 billion jobs bill, at the start of a three-day bus tour through key electoral states.
Senate Republicans this month blocked the broader legislation. It included an extension of a Social Security tax cut, which put an extra $1,000 to $2,000 in Americans pockets this year. The tax cut expires at the end of this year.
Paul Ashworth, chief U.S. economists for Capital Economics, said the expiration of the tax cut is a key reason growth could slow again in 2012.
Capital Economics expects 2.5 percent growth in the third quarter and 2.0 percent growth in the final three months of this year. But it is predicting just 1.5 percent growth for all of 2012. That’s not enough to lower the unemployment rate, which was 9.1 percent last month.
“The third quarter turned out to be a lot better than some feared and the economy has a little momentum going into the fourth,” Ashworth said in a research note. “Nevertheless, we’re still more worried about the first quarter of next year, particularly if the temporary payroll tax reduction is allowed to expire at the end of this year.”