Tuesday, May 17, 2016

US INDUSTRIAL PRODUCTION JUMPS

U.S. Industrial Production Jumps at Fastest Pace in More Than a Year

April’s 0.7% increase stems mostly from better weather


Oil pumps churning in Watford City, N.D., in 2014. ENLARGE
Oil pumps churning in Watford City, N.D., in 2014. Photo: Charles Rex Arbogast/Associated Press
WASHINGTON—A surge in industrial production in April showed the U.S. economy started the second quarter on solid footing, but the bounce mostly reflected weather-related factors rather than higher spending by consumers and businesses.
Industrial production—a measure of everything made by factories, utilities and mines—surged 0.7% in April, the Federal Reserve said Tuesday. That marked the biggest jump for a single month since November 2014.
Utilities drove the increase, boosting output by nearly 6% to respond to higher demand for electricity and natural gas. The Fed attributed the jump to a return to normal weather in April after a warmer-than-usual March.
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Factory output—the biggest component of overall production and a good measure of the economy’s health—grew 0.3% in April after falling by the same pace in March. Demand for big-ticket items such as machinery and cars picked up last month.
Mining output, meanwhile, fell a sharp 2.3% last month because of persistent woes in the energy and coal sectors.
TD Securities economist Millan Mulraine called the overall report “encouraging” but said the economy looked far from robust. “With the strong gains in utility production likely to be unsustainable and the rebound in the manufacturing sector looking vulnerable, the outlook for the industrial sector appears to be quite weak—particularly given signs of some softening in underlying domestic momentum,” Mr. Mulraine said in a note to clients.
The overall picture suggests underlying economic growth is still subdued nearly seven years after emerging from recession. Capacity use—a measure of how much industries are making as a share of potential output—ticked up half a percentage point last month to 75.4%. But that was still 4.6 percentage points below the historical average, showing that slack remains across the economy.
Industrial production fell 1.1% in the 12 months through April. Manufacturing output grew 0.4% over the year, as did utility output. Mining output declined 13.4%.
Overall output had fallen broadly since last summer. Factories cut back production because of weak demand for products, as the strong dollar drove up the price of U.S. exports in foreign markets, and weak global demand cut into sales. Drilling in the energy and coal sectors has fallen sharply, affecting mining and factory output.
Nonetheless, the economy appears poised for stronger, though still modest, growth this spring, due largely to a rebound in oil prices this year and a weakening of the dollar against other currencies.
The economy grew at just a 0.5% annual rate in the first quarter. Many private-sector forecasts expect growth to rebound to between 2% and 2.5%, annualized, in the current quarter. The Atlanta Federal Reserve estimates growth of 2.8%.
Write to Josh Mitchell at joshua.mitchell@wsj.com