AP: U.S. Factory Output Rebounds In May

For Immediate Release:

June 15, 2011

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The Associated Press

Factories produced more goods in May, bouncing back from supply disruptions caused by the Japan crises and tornadoes in the southern U.S. In April, those factors led to the first drop in output in 10 months.

Factory production increased 0.4 percent last month, the Federal Reserve said Wednesday. The gain follows a decline in April of 0.5 percent. A rise in production of business equipment and construction materials offset the second straight decline in auto production. A parts shortage out of Japan has hampered U.S. car manufacturers.

Excluding motor vehicles and parts, manufacturing increased 0.6 percent in May.

However, overall industrial production was basically flat for the second month in a row. It was dragged down by a decline in utility activity caused by milder spring weather. Production at mines rose 0.5 percent.

Industrial production has risen nearly 11.5 percent since a recession-low in June 2009. It remains 7 percent below its pre-recession peak reached in September 2007.

Output of business equipment and construction goods both increased more than 1 percent, a sign that the weak U.S. dollar continues to help factories by boosting overseas demand. A weak dollar makes goods appear less costly to overseas buyers.

Industrial and other equipment in May showed its first substantial gain since January, the Fed said. Production of transit equipment, computers and industrial machines all increased.

Production of business equipment had been one of the core strengths of manufacturing. It fell in March and April, the first declines this year. But production has risen 9.2 percent over the past 12 months.

Production of consumer goods edged down 0.1 percent. Factories made more long-lasting consumer goods, such as home electronics, appliances, furniture and carpeting. Output of shorter-term consumer items, such as food and tobacco, decreased. Milder weather reduced demand for electricity and gas. Home energy is counted as a short-lasting consumer good.

The report includes hopeful signs for economists, who lowered their expectations for growth after a string of weak data about manufacturing, home prices, unemployment and consumer confidence. It suggests that April's declines were the result of temporary disruptions, and that the manufacturing recovery remains on track.

Manufacturing has been a key driver of the economic recovery since the nation emerged from recession in June 2009. Yet the Labor Departed reported this month that factories laid off 5,000 workers in May after adding 160,000 jobs over the previous six months — the biggest wave of hiring for manufacturers since 1997. The unemployment rate rose to 9.1 percent and the economy added only 54,000 net jobs.

Manufacturing jobs generally help the economy more than service jobs because they tend to pay higher wages and provide better benefits

Recent data suggested factories are faltering because of concerns about high fuel prices and a recovery that is proceeding more slowly than many expected.

April's manufacturing decline of 0.5 was revised from an earlier-reported drop of 0.4 percent. The Fed blamed tornadoes that shut down factories the south near the end of April.

The Institute for Supply Management, a trade group of purchasing executives, said earlier this month that U.S. manufacturing activity expanded in May at the slowest pace in 20 months.

U.S. factories operated at 76.7 percent of their capacity in May, unchanged from April and slightly below March's post-recession high of 76.8 first reached in December.