Economy U.S. factory output rose in May after April decline

By Daniel Wagner

AP Business Writer

WASHINGTON (AP) -- U.S. factories rebounded in May to produce more business equipment and construction materials. The gains offset supply disruptions stemming from the Japan crises that have weighed on American auto companies.

Factory production increased 0.4 percent last month, the Federal Reserve said Wednesday. It followed a 0.5 percent drop in April, the first decline after 10 straight months of gains.

Paul Ashworth, chief U.S. economist with Capital Economics, said the report confirms that the April decline was driven by temporary factors, including the March 11 earthquake in Japan and tornadoes in the U.S. that slowed factory output in the South. He said factories are increasing production. But the rate of growth has slowed since last year.

"Certainly things have slowed down a bit, but I don't think it's a big deal," Ashworth said. "Things seem to be getting back to normal in Japan, so supply disruptions should ease up and it should unwind itself."

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.

Auto production fell in May, the second straight decline. A parts shortage out of Japan has hampered U.S. car manufacturers.

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

Output of business equipment and construction goods both increased more than one 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.

Construction goods also benefited from heavy reconstruction after the tornadoes in late April and early May, Ashworth said.

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.

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

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.

Published: Thu, Jun 16, 2011