Factory production in U.S. jumps 1% on equipment demand

WASHINGTON – Factory production increased in July at the fastest pace in five months as capital spending climbed and motor vehicle demand surged, indicating the industry is helping propel the U.S. economy.

The 1 percent gain at manufacturers followed a 0.3 percent increase in the prior month that was more than initially estimated, figures from the Federal Reserve in Washington showed Friday. Total industrial production, which also includes mines and utilities, advanced 0.4 percent for a second month in July.

Production lines have shifted into higher gear as Americans replace aging autos and companies grow more confident about expanding. Stronger demand in overseas markets, which has been a missing ingredient for American producers, would help provide additional momentum.

“We’re seeing a strengthening,” Mike Englund, chief economist at Action Economics LLC in Boulder, Colo., said before the report. “The factory sector has looked quite solid this year.”

- Advertisement -

Stock-index futures held earlier gains after the figures, with the contract on the Standard & Poor’s 500 Index expiring in September rising 0.3 percent to 1,958.3 at 9:19 a.m. in New York.

Total industrial production was projected to rise 0.3 percent, according to the median forecast in a Bloomberg survey of 82 economists. Estimates ranged from a drop of 0.4 percent to an increase of 0.7 percent after a previously reported June gain of 0.2 percent.

Manufacturing, which makes up 75 percent of total production, was forecast to increase 0.4 percent, according to the survey median.

Auto plants

Auto production soared 10.1 percent in July, the biggest gain since July 2009, after no change a month earlier. Factory output excluding vehicle and parts production climbed 0.4 percent, the most in four months.

Production of business equipment jumped 1.3 percent, the most since February. Output of machinery, computers, electronics and transportation equipment increased during the month.

Factories were also churning out more consumer goods. In addition to more motor vehicles, output of appliances, furniture and home electronics picked up.

Other data on manufacturing, which accounts for about 12 percent of the economy, show sustained progress. The Institute for Supply Management’s factory index was 57.1 last month, the highest reading since April 2011, the Tempe, Ariz.-based group reported August 1. Readings above 50 signal expansion.

Capacity utilization

Friday’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, rose to 79.2 percent in July from 79.1 percent.

Utility output declined 3.4 percent in July following a 0.7 percent decrease the prior month as cooler conditions reduced demand for air conditioning.

The average temperature in contiguous U.S. last month was 73.3 degrees Fahrenheit (22.9 Celcius), making it the mildest July since 2009, according to data from the National Oceanic and Atmospheric Administration.

Mining production, which includes oil drilling, increased 0.3 percent after a 1.3 percent gain.

Cars and light trucks sold at a 16.4 million annualized pace in July after a 16.9 million pace in June that was the strongest since July 2006, according to data from Ward’s Automotive Group.

Business equipment

American factories saw more demand for business equipment in June, according to the Commerce Department, as orders for non-military capital goods excluding aircraft climbed 1.4 percent. The pickup followed a 1.2 percent decrease in May.

Applied Materials Inc., the largest maker of semiconductor-manufacturing equipment, said Thursday that orders in the third quarter climbed 24 percent from the same three months last year. The Santa Clara, Calif.-based company also forecast fourth-quarter sales that may top estimates as demand rises for machines that make displays.

The outlook at Deere & Co., the world’s largest agricultural-equipment maker, is less upbeat. The Moline, Ill.-based company is among those scaling back production, as record crops lead to lower prices and deter farmers from upgrading tractors and combines.

“Grain prices have declined and farm income is expected to decrease in 2014,” Susan Karlix, who manages investor communications, said on an Aug. 13 conference call. “As a result, farm machinery demand is expected to be lower for the year.”

No posts to display