Industrial output up 0.2 percent in July

Friday August 15, 12:28 pm ET By Martin Crutsinger, AP Economics Writer
July industrial output rose by a better-than-expected 0.2 percent despite utility decline
WASHINGTON (AP) -- Industrial output rose in July at a slightly better pace than expected as a further rebound in the auto industry offset a big plunge in output at the nation's utilities.
The Federal Reserve reported Friday that industrial production edged up 0.2 percent last month. That was half the pace of the 0.4 percent gain in June, but it did surpass analysts' expectations for flat production in July.
The increase reflected a 0.4 percent gain in output at manufacturing plants. Motor vehicles and parts showed the biggest increase in manufacturing, advancing for a third straight month.
These gains were not seen as signaling a sustained rebound, however, given the problems facing the auto industry this year. Instead, the rebound in auto activity was viewed as a temporary improvement because a strike ended at parts supplier American Axle.
Even with the recent gains, production at auto plants remained 10.4 percent below where it was a year ago as automakers struggle with slumping demand due to the weak economy and the big spike in gasoline prices, which has hurt sales of their once-popular sport utility vehicles.
The modest increases in June and July production had followed three straight monthly declines. The manufacturing sector has been battered by the prolonged slump in housing and the multiple problems in the auto industry. Many economists viewed the slight strength in the past two months as temporary given what's ailing the broader economy.
"Unfortunately, housing activity continues to worsen, job losses continue, inflation is rampant, credit is more difficult to obtain and firms remain cautious about capital investments," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "We think manufacturing will remain in a slow, shallow, downward trend until early 2009."
Other analysts noted the industries that did well in July were for the most part connected to exports, which have been booming this year as declines in the dollar have boosted the competitiveness of U.S. products in foreign markets.
"Without the lifeline from the rest of the world, the manufacturing picture would be a lot darker," said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., forecasting firm.
The 0.4 percent increase in manufacturing helped to offset a big 1.9 percent drop in output at utilities, a decline which followed a 2.3 percent surge the previous month. Both changes were seen as weather-related.
The big June jump came from hotter-than-normal weather requiring increased electricity production. The decline in July reflected a return to more normal weather which meant a drop in utility output compared to the previous month.
Output in the mining sector rose a strong 0.9 percent, matching the increase of the previous month. The gains in this sector have been paced by strong activity in oil and natural gas production.
With all the changes, the nation's factories, mines and utilities operated at 79.9 percent of capacity in July, up slightly from June when the operating rate was 79.8 percent of capacity. That level remained below the average operating rate of 81 percent seen over the last 25 years.
While the surge in U.S. export sales has been a bright spot, there is concern that this boom may not last given spreading weakness in major overseas markets in Europe and Japan.