Industrial production shows signs of slowing Motor vehicle output was all that kept index from declining in July

August 16, 1996|By BLOOMBERG BUSINESS NEWS

WASHINGTON -- U.S. industrial production rose at the slowest pace in four months during July, and early indications showed that the sluggishness continued into August.

Output of factories, mines and utilities rose 0.1 percent last month, the Federal Reserve said yesterday. That followed a June gain of 0.6 percent, larger than previously reported. Weaknesses in other industries were offset by increased car and truck production as automakers braced for a possible strike.

Excluding output of motor vehicles and parts, industrial production fell 0.1 percent in July. The drop suggests that "the economy will decelerate to a more modest pace" during the next few months, said economist Sam Kahan of ASK Financial Research of Chicago.

Underscoring the potential for a slowdown in manufacturing, a regional survey released yesterday by the Federal Reserve Bank of Philadelphia said growth in factory output slid this month.

Economists forecast a 0.1 percent dip in July industrial production, and the unexpected gain increased concern that inflation may accelerate, eroding the value of bonds' fixed payments.

Another report yesterday showed that U.S. labor markets remained healthy. First-time claims for state unemployment insurance rose by 5,000 last week, to a seasonally adjusted 321,000, while the less volatile four-week average for claims declined, the Labor Department said.

On the other hand, the Philadelphia Fed's survey signaled that the threat of inflation lessened in its region.

Separately, the Fed said the U.S. plant-use rate -- a measure of the amount of industrial capacity in operation nationwide -- fell to 83.2 percent in July from 83.4 percent during June.

And the National Association of Home Builders said prospects for the housing market weakened in August for the fourth month in a row.

"There's not a lot of need to worry about overheating" in the economy, said Cynthia Latta, an economist at DRI/McGraw-Hill in Lexington, Mass.

While Fed policy-makers meet Tuesday to discuss interest-rate policy, it's unlikely that central bankers will raise rates any time soon, said Mark Vitner, an economist at First Union Corp. in Charlotte, North Carolina.

"The economy is decelerating and that's enough for the Fed to leave interest rates unchanged until after the [presidential] election," Vitner said.

Auto and truck production rose 7.9 percent last month as Ford Motor Co., General Motors Corp., and Chrysler Corp. prepared for a possible United Auto Workers walkout. The UAW will announce its strike target later this month.

Elsewhere, department store and discount store sales were slow, and home sales showed signs of losing momentum. Unusually cool weather along the Atlantic Coast caused utility output to decline in July. Mining output also fell last month.

By category, manufacturing production increased 0.3 percent in July and household appliance production increased 1.1 percent. Construction supply production was unchanged during the month as homebuilding slowed. Mining output fell 0.3 percent during July and output at utilities decreased 1.8 percent for the month.

July's overall production gain was the smallest since a 0.5 percent decline in March.

Pub Date: 8/16/96

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