Manufacturing posted stronger gains than forecast in June
As growth in consumer demand starts filtering through into the production front, we should see an improvement in manufacturing Jennifer Lee, a senior economist at BMO Capital Markets in Toronto
MANUFACTURING last month posted the strongest advance since January, helped by automobile production and a sign domestic demand is improving.
The 0.4 per cent gain at factories, which make up 75 per cent of total industrial production, followed a 0.3 per cent decline in May, a Federal Reserve report showed last Friday in Washington. The median forecast in a Bloomberg survey of 25 economists called for a 0.3 per cent rise. Total industrial production, which also includes mines and utilities, jumped 0.6 per cent, also exceeding the median forecast and the biggest gain in almost a year.
Stabilisation in oil and commodities prices and the fading drag from a stronger dollar are allowing manufacturers to find their footing. Trimmer inventories and a pickup in household demand will underpin factory activity, at the same time the fallout from the UK’s impending exit from the European Union poses a hurdle for American companies that sell overseas.
“As growth in consumer demand starts filtering through into the production front, we should see an improvement in manufacturing,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said before the report. “It’s still going to be a slow process.”
Manufacturing accounts for about 12 per cent of the economy. Economists’ estimates in the Bloomberg survey ranged from unchanged to an advance of 0.6 per cent for factory output. The previous month’s reading was revised from a drop of 0.4 per cent.
For total industrial production, the Bloomberg survey of 77 economists showed estimates ranging from a decline of 0.1 per cent to a rise of 0.9 per cent. The prior month was previously reported as a decrease of 0.4 per cent.
Capacity utilisation, which measures the amount of a plant that is in use, rose to 75.4 per cent from 74.9 per cent in the prior month.
Utility output surged 2.4 per cent, after a 0.9 per cent drop the previous month, the Fed report showed. The results probably reflected warmer weather. It was the warmest June on record for the 48 contiguous states, with above- average temperatures from coast to coast, according to the National Oceanic and Atmospheric Administration.
Mining production, which includes oil drilling, increased 0.2 per cent, reflecting stabilisation in the price of oil and other commodities.
The output of motor vehicles and parts increased 5.9 per cent after a 4.3 per cent drop a month earlier. Excluding autos and parts, manufacturing was unchanged after a 0.1 per cent rise.
Machinery production increased 1.1 per cent, and output of computers and electronics fell 0.5 per cent. Construction materials dropped 0.8 per cent. Consumer goods production jumped 1.1 per cent, while output of business equipment climbed 0.7 per cent. — WP-Bloomberg