Strong U.S. industrial output bolsters growth picture | Reuters - Firstpost
You are here:

Strong U.S. industrial output bolsters growth picture | Reuters


WASHINGTON U.S. industrial production in January rose by the most in 14 months as manufacturing and utilities output increased, the latest sign the economy regained some ground early in the year.

While other data on Wednesday showed a surprise decline in housing starts last month, that was probably because of bad weather, especially in the Northeast and Midwest regions of the country. With building permits ahead of groundbreaking activity, home construction is likely to pick up in the months ahead.

The first increase in industrial output in five months should help allay the fears of a recession that have roiled the stock market and eliminated bets for an interest rate hike from the Federal Reserve in March. The chances of an increase in borrowing costs this year hang in the balance.

"If we step back and view the economy from afar, we see that consumers are spending, manufacturing is beginning to rebound and housing, though not great, is hardly weak. The domestic economy is fine," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. 

Industrial production jumped 0.9 percent last month, the largest gain since November 2014, the Fed said. The increase followed a 0.7 percent decline in December and was boosted by a 0.5 percent advance in manufacturing output.

The rise in manufacturing production reflected gains in the output of long-lasting goods such as machinery, furniture and primary metals. Motor vehicle assembly accelerated. The production of food, textiles and chemicals also rose.

But manufacturing is not out of the woods and will continue to be buffeted by a strong dollar, weak global demand and lower oil prices.

Industrial output was also buoyed by a 5.4 percent surge in utilities production as the return to normal winter temperatures saw a jump in demand for heating. Mining output was flat after four straight months of hefty declines that averaged about 1.5 percent per month.

"This bounce is not terribly surprising because the economy is still growing and it fits with our call that eliminating the risk of a March rate hike was a mistake," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

U.S. Treasury debt prices fell, while U.S. stocks were trading higher. The dollar was little changed against a basket of currencies.    

The fairly upbeat industrial production report added to data last week showing strength in consumer spending in suggesting that economic growth picked up early in the first quarter after abruptly slowing in final months of 2015.

The economy grew at a 0.7 percent annual pace in the fourth quarter. Forecasting firm Macroeconomic Advisors raised its first-quarter GDP growth estimate by one-tenth of a percentage point to a 2.1 percent rate on the industrial production data.

WEAK HOUSING STARTS

    In a separate report, the Commerce Department said groundbreaking activity on new housing projects fell 3.8 percent to a seasonally adjusted annual pace of 1.099 million units last month. Starts dropped in the Northeast, which was blanketed by snowstorms last month, and also tumbled in the Midwest.

Building permits dipped 0.2 percent to a 1.202 million-unit rate last month. Permits remain above starts, indicating that building activity will rebound in the coming months. In addition, housing market fundamentals remain strong, with a tightening labor market starting to push up wage growth.

"We continue to believe that the housing market will be one of the bright spots for the domestic economy in 2016 ... reflecting stronger job growth, increased household formations and the current paucity of supply, particularly in the new home market," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

"Expectations that interest rates are likely to remain lower for longer should also support demand."

In a third report, the Labor Department said its producer price index edged up 0.1 percent in January as the cost of services increases, after slipping 0.2 percent in December. In the 12 months through January, the PPI decreased 0.2 percent after declining 1.0 percent in December.

The increase in services was led by a 4.0 percent surge in margins for machinery and equipment. There were also gains in costs related to securities brokerage and dealing, and loan services. But energy prices fell 5.0 percent, while food prices rose 1.0 percent.

A key measure of underlying producer price pressures that excludes food, energy and trade services advanced 0.2 percent. The so-called core PPI rose 0.8 percent in the 12 months through January. Overall, inflation is currently running below the Fed's 2 percent target.

"The rate of PPI inflation has picked up. The question is whether it will pick up enough to push consumer inflation toward 2 percent," said Chris Low, chief economist at FTN Financial in New York. "The modest acceleration in the index is a step in the right direction, but not yet cause for confidence the Fed can reach its inflation goal."

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Feb 18, 2016 00:15 IST

Comment using Disqus

Show Comments