GM leads largest output gain in 14 years August production increased by 1.7%

The economy

September 17, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. industrial production posted the strongest gain in more than 14 years in August, a government report showed yesterday, but almost all of it resulted from the restart of General Motors Corp. plants after a 54-day strike.

The gain isn't likely to be matched in the months ahead, though, as export sales slow, analysts said.

Production at factories, mines and utilities rose 1.7 percent last month -- the largest monthly increase since a 2.1 percent gain in January 1984 -- after falling 0.4 percent in July. Before the report, analysts had expected a 1.1 percent increase in August production.

"It looks like it's all GM," said Paul Kasriel, an economist at Northern trust Co. in Chicago. "With the global economic situation not looking up -- even turning negative -- I would say manufacturing is going to be sluggish."

The plant-use rate, which measures the amount of industrial capacity in use, rose to 81.7 percent in August from 80.6 percent during July, the Fed said. That's the highest level since May. Analysts expected an August reading of 81.2 percent. July's plant-use rate was previously reported as 80.5 percent.

Though industrial production staged a rebound in August, the Fed's report suggested that there was little evidence of a broad-based manufacturing recovery.

"The gain slightly exceeded the cumulative decline in production in June and July" when GM plants were shut down, the Fed said. "Excluding motor vehicles and parts, the index of industrial production was at approximately the same level in August as it had been in May."

Still, consumer spending remains a source of strength for the economy, with jobs in abundance, interest rates low. In the current third quarter, overall economic growth is in positive territory of about 2 percent, measured at an annual rate, according to analyst estimates.

Excluding motor vehicles and parts, industrial production rose 0.1 percent in August after rose 0.2 percent in July, the Fed said in yesterday's report.

Manufacturing output advanced 2.0 percent in August after falling 0.4 percent in July, the Fed said. Mining output fell 0.6 percent last month after rising 0.3 percent in July. Output at utilities rose 0.4 percent in August vs. a decline of 0.9 in July.

Another Fed report suggested that the U.S. economy may be cooling and inflation is mostly absent. "The economy is continuing to expand at a moderate pace, although several districts indicated slowing in some sectors," the Fed said in its latest regional economic outlook, also known as the beige book.

The outlook, based on reports from the Fed's 12 district banks, also signaled that consumer confidence may be waning. "Several districts indicate a sharp deterioration in both business and household expectations regarding the economy in the fourth quarter and in 1999," the report said. At the same time, strength in construction and retail sales is offsetting weakness related to the slowdown of exports to Asia, the Fed said.

Reflecting the falloff in auto production at GM, the Commerce Department reported that business inventories were unchanged for a third straight month in July. Business sales declined in July for the first time since April.

Pub Date: 9/17/98

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