Industrial production rises again

0.2% June increase means 7 months without a decline

Swiftest pace in 1 1/2 years

But further gains may hinge on upturn in overseas demand

July 17, 1999|By BLOOMBERG NEWS

WASHINGTON -- U.S. industrial production rose in June, the seventh month without a decline, led by increased demand for automobiles, computers and electricity, according to a report yesterday.

Output at factories, mines and utilities rose 0.2 percent last month, capping a 3.9 percent second-quarter annualized increase, the Federal Reserve said. The quarterly pace was the fastest in 18 months and triple the first quarter's rate.

"U.S. consumer and investment spending has provided a foundation of strength" for manufacturing and the economy, said Tim O'Neill, chief economist with Bank of Montreal and Harris Bank in Toronto.

That's powering earnings at companies such as Ford Motor Co. The world's No. 2 automaker sold a record 8.54 million cars and trucks to U.S. consumers in the first six months of this year, helping pace a 4.3 percent rise in second-quarter profits.

Still, U.S. manufacturing gains may be tempered until the global economy starts to accelerate. "We're going to start to need higher demand abroad and exports to be able to increase the pace of production from what we've seen so far this year," said Vincent Boberski, senior economist with Minneapolis-based Dain Rauscher Inc.

Meantime, U.S. consumer optimism is staying robust. While the University of Michigan's survey of consumer sentiment for July fell to 106.2 from 107.3 a month earlier, the reading was above the average of 105 for the last year and a half.

"Record equity markets, low inflation, tight labor markets and still-low interest rates" should keep consumer sentiment buoyant, said Steve Wood, an economist at Banc of America Securities in San Francisco.

The Fed's industrial production report showed that manufacturing output advanced 0.1 percent in June after rising 0.3 percent in May. Manufacturing grew at a 4.1 percent annual pace in the second quarter, up from a 1.5 percent rate in the first three months of the year.

Output of autos and trucks rose 2.7 percent last month, and home electronics rose 2 percent, accounting for almost all of the June factory increase.

Production of computers and office equipment rose 2.7 percent. For the second quarter, output of computers rose at a 48 percent annual pace, up from a first-quarter rate of 33.7 percent.

The overall plant-use rate, which measures industrial capacity in use, fell to 80.3 percent in June from 80.4 percent during May. Analysts had expected a June reading of 80.4 percent. May was previously reported as 80.5 percent.

The improvement in the nation's industrial production is mostly due to a surge in consumer demand. In the first quarter, consumer spending rose at a 6.7 percent annual rate, the strongest pace in 11 years.

"Because of inventory rebuilding and swelling foreign demands, I expect a second-half boomlet in industrial production," said Kenneth Mayland, chief economist at KeyCorp in Cleveland.

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