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US industrial production unexpectedly falls in April

LiveMint logoLiveMint 15-05-2014 Shobhana Chandra

Washington: Industrial production in the US unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing.

Output at factories, mines and utilities decreased 0.6% after a 0.9% gain the prior month that was larger than previously reported, a report from the Federal Reserve showed on Thursday in Washington. The median forecast in a Bloomberg survey of 81 economists called for an unchanged reading. Manufacturing, which makes up 75% of total production, decreased 0.4%.

The disappointing result in April may signal a respite following gains the previous two months as manufacturing rebounded from unusually harsh winter weather. Deere & Co. is among companies projecting a pickup in demand and Thursday’s report also contrasts with recent figures, such as the New York Federal Reserve’s Empire State index, that show the economy is on track for faster economic growth this quarter.

The broad trend is, manufacturing is not booming but fairly solid, Jim O’Sullivan, chief US economist at High Frequency Economics Ltd. in Valhalla, New York, said before the report. April may look weak after a strong March but it’s consistent with fairly strong second-quarter growth in the economy.

Estimates in the Bloomberg survey ranged from a drop of 0.6% to an increase of 0.5%. The prior month was previously reported as a gain of 0.7%.

Other data

Manufacturing accounts for about 12% of the economy.

The Institute for Supply Management’s factory index rose to 54.9 from the prior month’s 53.7, the Tempe, Arizona-based group’s reported on 1 May. Seventeen of 18 industries reported growth in April, the most in three years. Readings above 50 indicate expansion.

Thursday’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, fell to 78.6% from 79.3% the prior month.

Utility output slumped 5.3%, the most since January 2006, after a 0.6% gain the previous month.

Mining production, which includes oil drilling, increased 1.4%.

Carmakers were among the bright spots in Thursday’s report. The output of motor vehicles and parts increased 0.1% after a 0.4% advance a month earlier, today’s report showed. Excluding autos and parts, industrial production fell 0.6% after a 0.9% gain in March.

Auto sales

Industry data indicate vehicle sales will remain a mainstay for factories. Cars and light trucks sold at a 16 million annualized pace in April after a 16.3 million rate in March, according to Ward’s Automotive Group. Those were still the best back-to-back months since September-October of 2007. GM beat estimates for April while Ford Motor Co. missed them.

The economy appears to be on an improving trend for the second quarter and the rest of the year, Emily Kolinski Morris, senior US economist at Dearborn, Michigan-based Ford, said on a 1 May sales call. She cited advances in consumer confidence and employment as helping demand.

Moline, Illinois-based Deere, the largest agricultural- equipment maker, posted lower-than-expected sales in its fiscal second quarter through April. At the same time the company projected construction and forestry sales will climb 10% in the full year on a recovery in US housing. Caterpillar Inc, the world’s largest maker of construction equipment, last month doubled its 2014 sales growth forecast for building equipment.

Machinery output

Machinery production dropped 1.6% and construction materials were unchanged, Thursday’s report showed. Output of computers and electronics decreased 0.4. Consumer goods production declined 1.3%.

Retail sales held steady in April, advancing 0.1% after a 1.5% surge in the previous month that marked the biggest gain in four years, commerce department figures showed on 13 May.

The economy, which grew at a 0.1% annualized rate from January through March, may expand at a 3.5% pace in the second quarter, according to the median forecast of economists surveyed by Bloomberg News from 2 May to 7 May.

The New York Fed’s manufacturing index, known as the Empire State gauge, jumped to 19 this month, the highest since June 2010, another report showed on Thursday. BLOOMBERG

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