U.S. industrial production rose in August as a bounce back in motor vehicle assembly lifted manufacturing output – a hopeful sign for the economy after growth got off to a slow start in the third quarter.
Though another report on Monday showed a slight pullback in factory activity in New York state this month, businesses were upbeat about the future and new orders and shipments jumped, all pointing to an improvement in manufacturing after it hit a speed bump in the spring.
“Growth in the manufacturing sector is picking up and will run faster over the balance of the year than has been the case in recent months,” said John Ryding, chief economist at RDQ Economics in New York.
Industrial output increased 0.4 per cent last month after being flat in July, the Federal Reserve said. The rise was in line with economists’ expectations.
In a separate report, the New York Federal Reserve said its Empire State general business conditions index slipped to 6.29 from 8.24 in August. A reading above zero indicates expansion.
However, firms expected an improvement in the months ahead. The index of six-month business conditions touched its highest level in nearly 11/2 years in September.
“We see this future optimism as more of a sign of the willingness for businesses to invest if the economy rebounds more aggressively, although the choppy path of capex intentions suggest that there remains a lot of uncertainty,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
In addition, a gauge of new orders rose sharply after almost stalling in August. Shipments surged to their highest level in more than a year.
The industrial production report showed manufacturing production advanced 0.7 per cent, more than reversing the prior month’s 0.4 per cent drop, as automobile assembly rebounded 5.2 per cent after slumping 4.5 per cent in July.
But revisions to July’s manufacturing data to show a big drop in output took some of the shine from the August recovery.
Still, the industrial production report, which showed gains almost across the board, pointed to underlying momentum in factory activity, which could support views of only a mild slowdown in economic growth this quarter.
That should keep the Federal Reserve on course to announce cuts to its monthly bond purchases when policymakers meet on Tuesday and Wednesday to assess the economy’s health.
Utilities output fell for a fifth consecutive month in August. Mining production rose 0.3 per cent last month, but that was a big step back from July’s 2.4 per cent increase.
Last month, the amount of industrial capacity in use edged up to 77.8 per cent from 77.6 per cent in July.
Industrial capacity utilization – a measure of how fully firms are using their resources – was 2.4 percentage points below its long-run average.
Officials at the Fed tend to look at utilization measures as a signal of how much “slack” remains in the economy, and how much room growth has to run before it becomes inflationary.