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Industrial Production Marks First Gain In Nine Months

Fri, 08/14/2009 - 6:15am

WASHINGTON (AP) — Production from the nation's factories, mines and utilities rose more than expected in July, with the first gain in nine months driven by increased output from auto companies.

The increase provides more evidence that the worst recession since World War II is easing. It marks only the second gain in industrial production since the downturn began in December 2007.

The Federal Reserve said Friday that production rose 0.5 percent in July, after falling 0.4 percent in June. Economists expected a 0.3 percent increase, according to Thomson Reuters.

Automakers led the rebound, as the production of motor vehicles and parts rose 20.1 percent, after falling for three straight months.

General Motors and Chrysler last month reopened many plants that had been closed in May and June as the companies restructured and emerged from bankruptcy protection.

Sales also jumped in response to the government's Cash for Clunkers program, which provides consumers up to $4,500 for trading in old cars. Auto sales clocked in at a seasonally adjusted annual rate of 11.2 million in July, up from 9.7 million in June.

Ford Motor Co. said Thursday that it will increase production in response to the program. The company said it will boost third-quarter production to 18 percent above last year's levels, and fourth-quarter production 33 percent.

Production also rose in other areas, according to the Fed. Excluding autos, manufacturing output rose 0.2 percent, as companies produced more aerospace equipment, computers and electronic products, and plastics.

Mining output increased 0.8 percent. Utility output fell 2.4 percent, however, due to mild weather, the Fed said.

Industrial production likely will remain healthy for the rest of the year as companies restock depleted inventories, said Joshua Shapiro, chief U.S. economist for MFR Inc. But a longer-term rebound will depend on greater consumer demand.

"On that score, we believe that the recovery process will be subdued and uneven," Shapiro wrote in a note to clients.

Many economists were disappointed by a report Thursday that retail sales fell 0.1 percent in July, indicating that consumers remain cautious.

Despite July's increase, total industrial production is down 13.1 percent from a year ago. And many factories remain idle. The operating rate for the nation's mines, plants and utilities was 68.5 percent in July, up from a record low of 68 percent in June. The rate is usually around 80 percent in a healthy economy.

The recession has taken a bite out of demand in the U.S. for all kinds of manufactured goods, especially those related to housing, such as appliances and building materials.

Production of appliances dropped 0.8 percent in July, while construction supplies fell 0.1 percent, according to the Fed.

Many manufacturers also have suffered from a drop in overseas sales, as foreign economies plunged into recession.

But that may be changing, as many European and Asian countries show signs of growing again. On Wednesday, the Commerce Department reported that U.S. exports rose for the second straight month.

Large gains in shipments of semiconductors, civilian aircraft and engines, and telecommunications equipment led the export increase, the department said.

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