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Industrial Production in U.S. Climbed 0.2% in June, Fed Says (2)

July 16 (Bloomberg) -- Industrial production climbed 0.2 percent in June, capping the strongest quarter in almost four years and indicating manufacturers are providing a bigger spark for the U.S. economy.

The gain in output at factories, mines and utilities last month followed a revised 0.5 percent advance in May, figures from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.3 percent advance. Production rose at a 5.5 percent annualized rate from April through June, the most since the third quarter of 2010.

The fastest pace of motor vehicle sales in eight years and a recent pickup in bookings for business equipment indicate further gains in output. An improvement in overseas markets would also contribute to busier assembly lines and propel the economy in the second half of the year.

“For the moment, it seems like production is on a pretty good roll,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who correctly projected the June gain. “Demand for autos has been very strong in recent months, but it’s still the case that firms have been pretty aggressive in terms of their inventory buildup.”

Estimates of the 82 economists surveyed by Bloomberg ranged from a drop of 0.1 percent to an increase of 0.6 percent after a previously reported May gain of 0.6 percent.

Stocks advanced amid deals and earnings reports, while data showed economic growth in China topped forecasts. The Standard & Poor’s 500 Index rose 0.4 percent to 1,980.97 at 9:45 a.m. in New York.

Factory Output

Manufacturing, which makes up 75 percent of total production, grew 0.1 percent in June, less than forecast as automakers cut back and factories slowed output of nondurable goods such as energy and clothing. The median projection in the Bloomberg survey called for a 0.3 percent June increase.

In the second quarter, factory production advanced at a 6.7 percent annualized rate, the fastest since the first three months of 2012.

“Things slowed down a little bit in June,” Sweet said. “The auto plant production schedules point to a pickup in auto manufacturing over the next couple of months.”

Other data on manufacturing, which accounts for about 12 percent of the economy, show sustained progress. The Institute for Supply Management’s factory index was 55.3 last month, little changed from a five-month high of 55.4 in May, the Tempe, Arizona-based group reported July 1. Readings above 50 signal expansion. The ISM’s gauge of orders climbed to the highest level of the year.

Plant Use

Today’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, held at 79.1 percent in June.

Utility output fell 0.3 percent after a 0.4 percent decline the previous month. Mining production, which includes oil drilling, increased 0.8 percent.

The output of motor vehicles and parts decreased 0.3 percent in June after a 1.9 percent surge a month earlier, today’s report showed. Factory output excluding vehicle and parts production rose 0.2 percent last month.

Industry sales data indicate factory lines will remain busy. Cars and light trucks sold at a 16.9 million annualized pace in June, the strongest since July 2006, after a 16.7 million rate in May, according to data from Ward’s Automotive Group. Such demand helps explains why automakers such as Ford Motor Co. are upbeat about prospects for the second half of 2014.

Consumer Spending

“We’ve seen very good improvements in manufacturing activity,” Ellen Hughes-Cromwick, Dearborn, Michigan-based Ford’s chief economist, said on a July 1 sales and revenue call. “Credit channels are very constructive for the consumer now, with a still low interest rate environment.”

Ford isn’t alone in seeing improvements. Office furniture maker Steelcase Inc. has reported stronger demand as companies grow more upbeat about the outlook for the economy.

“Through the first three weeks of June, orders have grown at a low-single digit percentage,” in the Americas, Chief Financial Officer David Sylvester said in a June 26 earnings call for the Grand Rapids, Michigan-based company. “We experienced order growth in the technical, professional, manufacturing, energy, information technology and insurance services sectors.”

American factories received more orders for business equipment in May, according to the Commerce Department, pointing to gains in investment that will probably help the economy snap back after contracting in the first quarter. Bookings for capital goods such as computers rose 0.7 percent.

Business Investment

Capital spending on equipment fell at a 2.8 percent rate during the first quarter. Gross domestic product shrank at a 2.9 percent annualized rate, the biggest decline since the depths of the recession in early 2009.

The downturn in GDP reflected a slowdown in the pace of inventory growth, setting the stage for stronger production as consumer purchases pick up.

Building on progress in the labor market, households are still spending. Retail sales showed a broad-based gain in June, with purchases climbing 0.2 percent after a 0.5 percent advance in May that was larger than previously reported, Commerce Department figures showed yesterday.

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