Output goes on upswing at factories and mines though utilities moved down to notch fourth consecutive month of decline, reports Team IFM
New York, June 20: American industrial production rose last month after a slight dip in April in continuation of a trend discerned in New York state factories, recent official data shows, confirming an independent survey that said overall manufacturing activity in the US witnessed the sharpest rise in May over the last three years.
Data released by the Federal Reserve said industrial output, which had witnessed a decline of 0.3 percent in April, jumped 0.6 percent last month. The decrease in April was previously reported to have been 0.6 percent, indicating production was better than that initially estimated.
The data showed manufacturing output increased 0.6 percent in May after having moved down 0.1 percent in the previous month, while that of mines gained 1.3 percent. The production of utilities, however, decreased 0.8 percent.
The Federal Reserve finding was in line with the median forecast of a panel of economists polled by The Wall Street Journal, which had predicted the industrial production would rise 0.5 percent in May. Simultaneously, the economists had predicted, capacity utilisation would swell to 78.9 percent.
Analysts attributed better weather conditions to the pick-up witnessed in industrial activity in the manufacturing and the mining sectors. “In short, the winter hit is now history, and output is rising strongly,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note to clients.
The Empire State Manufacturing Survey report for this month, released on June 16, also showed business conditions improved significantly for a second consecutive month for New York manufacturers, with the headline general business conditions index at 19.3, the strongest since June 2010.
It easily topped last month’s multiyear high of 19.1 and was way ahead of the median reading of 15 forecast by analysts polled by Reuters.
Earlier this month, economy tracker Markit released its May report for the manufacturing sector, saying its data signalled that output growth at US factories continued to pick up speed through the second quarter, thanks mainly to a sharp upswing in new business volumes.
Greater production requirements and efforts to rebuild stocks of purchases meanwhile contributed to a survey-record increase in input buying during the latest survey period.
Adjusted for seasonal influences, the final Markit US Manufacturing PMI, which is designed to signal changes in prevailing business conditions in the country, picked up to 56.4 in May, from 55.4 in April.
“Purchasing managers reported a further surge in business activity in May,” said Chris Williamson, Chief Economist at Markit, in a note. “With the exception of a brief spell in early-2010, output is growing at the fastest rate seen since prior to the financial crisis.”
FACTORIES, MINES UP
The Federal Reserve’s report said that at 103.7 percent of its 2007 average, total industrial production in May was 4.3 percent above its level of a year earlier.
The capacity utilisation rate for total industry increased 0.2 percentage point in May to 79.1 percent, a rate that is 1.0 percentage point below its long-run (1972–2013) average.
Manufacturing production increased 0.6 percent, with the index touching 3.6 percent above its level of a year earlier but 1.3 percent below its peak in December 2007. The factory operating rate moved up 0.3 percentage point in May to 77.0 percent, its highest level since March 2008 but still 1.7 percentage points below its long-run average.
The production of durable goods rose 0.9 percent in May to a level 5.3 percent higher than a year earlier. Gains were widespread within this industry group, with the exception of primary metals, which edged down 0.1 percent, all of the major durable goods industries recorded gains of 0.6 percent or more.
Capacity utilization for durable goods manufacturing increased 0.4 percentage point to 76.8 percent, a rate only 0.2 percentage point below its long-run average and 1.3 percentage points above its level of a year earlier.
Nondurable manufacturing output increased 0.4 percent in May after having moved down 0.2 percent in April; the index in May was 2.2 percent above its level of a year earlier. There were sizable gains in the indexes for petroleum and coal products.
Mining output advanced 1.3 percent in May following gains of more than 1.5 percent in each of the previous two months. Increases were widespread within mining, including oil and gas extraction, coal mining, and drilling and related activities.
The index for mining was 9.7 percent above its year-earlier level. Capacity utilization at mines increased 0.8 percentage point in May to 91.0 percent, a rate 3.7 percentage points above its long-run average.
However, the output of utilities moved down 0.8 percent, its fourth consecutive decline. The operating rate for utilities fell 0.8 percentage point to 79.1 percent, a rate 7.0 percentage points below its long-run average.
Market group-wise, the production of consumer goods edged up 0.1 percent to a level that is 3.1 percent higher than a year earlier.
The index for consumer durables increased 0.9 percent, while the indexes for consumer non-energy nondurables and consumer energy products decreased 0.2 percent and 0.1 percent, respectively.
All of the major components of consumer durables posted gains, with the largest advance – 1.5 percent – registered by automotive products.
BRISKEST GROWTH
Meanwhile, the latest Markit reading was well above the neutral 50.0 value and signalled a robust improvement in overall business conditions, and added to signs that the economy has enjoyed a strong revival after shrinking due to the adverse weather at the start of the year.
It also pointed to a steep increase in production levels, with the rate of expansion accelerating for the second month running to the fastest since February 2011.
“Anecdotal evidence from survey respondents cited improving underlying demand, better economic conditions and greater investment spending among clients,” Markit said.
According to the data, large manufacturers with more than 500 employees registered the fastest output expansion of the three company size categories monitored by the survey.
Consumer goods producers recorded the strongest improvement and witnessed the sharpest rise in new business received by consumer goods producers for just over four years.
“This is not simply a weather-related rebound,” said Markit economist Chris Williamson. “Companies are reporting that their customers and feeling more confident, restocking, expanding and investing.”
The economist also felt it was the household sector in particular is leading the upturn, with demand for consumer goods rising at the fastest rate for four years.
“This is therefore very much a domestic led upturn, but it is encouraging to also see that growth of export orders picked up in May, pointing to an improved trade balance in the second quarter,” Williamson said.