US fac­tory out­put climbed, lifted by auto pro­duc­tion

The Pak Banker - - BUSINESS -

Auto plants, cloth­ing mak­ers and plas­tics fac­to­ries drove a sharp re­bound in U.S. man­u­fac­tur­ing in July.

U.S. fac­tory pro­duc­tion climbed a sea­son­ally ad­justed 0.8 per­cent last month af­ter a re­vised es­ti­mate showed that out­put had dipped 0.3 per­cent in June, the Fed­eral Re­serve said Fri­day. The gains sug­gested that man­u­fac­tur­ers are ad­just­ing to the ob­sta­cles of a stronger dol­lar, tepid eco­nomic growth abroad and lower oil prices, which have led energy com­pa­nies to slash their or­ders for equip­ment and pipe­lines.

"In­dus­trial pro­duc­tion is turn­ing around af­ter weak­ness in early 2015," said Stu­art Hoff­man, chief economist at PNC Fi­nan­cial Ser­vices.

Much of the im­prove­ment came from mo­tor ve­hi­cle out­put, which surged 10.6 per­cent in July. Auto sales jumped 5 per­cent to 1.5 mil­lion, with lux­ury brands such as Acura, Audi, In­finiti, Lin­coln and Volvo ac­count­ing for dou­ble-digit gains.

Out­put at cloth­ing and leather fac­to­ries rose 1 per­cent last month, as did the man­u­fac­tur­ing of plas­tics and rub­ber prod­ucts. Some of those gains were off­set by re­duced out­put by oil and coal re­fin­ers, as well as by a drop in pro­duc­tiv­ity at ma­chin­ery plants.

Some an­a­lysts sug­gested that the gains in auto pro­duc­tion weren't as im­pres­sive as the num­bers might in­di­cate. Jesse Hur­witz at Bar­clays Re­search noted that auto plants gen­er­ally close tem­po­rar­ily in July to re­tool for new model lines and that the shut­down this year was shorter than nor­mal. This would mean that the Fed re­port ex­ag­ger­ated the gains in mo­tor ve­hi­cle out­put last month and that auto pro­duc­tion might dip in Au­gust.

The Fed­eral Re­serve said over­all in­dus­trial pro­duc­tion - which in­cludes not only the key cat­e­gory of man­u­fac­tur­ing but also min­ing and util­ity out- put- rose 0.6 per­cent. Min­ing, which in­cludes oil and gas wells, rose 0.2 per­cent last month but re­mains down 2 per­cent over the past 12 months. Util­ity out­put, which of­ten fluc­tu­ates sharply from month to month depend­ing on weather, fell 1 per­cent.

Fac­to­ries have been bat­tered for much of 2015. Win­ter storms slowed and even stopped some assem­bly lines in Jan­uary and Fe­bru­ary. The slow­down ex­tended into spring. Or­ders for equip­ment and ma­chin­ery were hurt by the ris­ing value of the dol­lar, which makes U.S. goods more ex­pen­sive over­seas and de­pressed ex­ports. Lower oil prices, which slowed or­ders from energy firms, also re­duced out­put. The dol­lar has risen about 20 per­cent against a bas­ket of for­eign cur­ren­cies in the past 12 months, ac­cord­ing to the Fed.

Crude oil prices, which were around $60 per bar­rel in the spring, fell close to $41 in early trad­ing Fri­day, lev­els not seen since the global fi­nan­cial cri­sis. The de­cline has forced energy firms to cur­tail drilling, elim­i­nat­ing much of the need for new pipe­lines and equip­ment that had boosted fac­tory or­ders in years when prices were closer to $100 a bar­rel. Over the past 12 months, man­u­fac­tur­ing out­put has risen just 1.5 per­cent.

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