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June Industrial Production Roars Ahead
Industrial production, helped by a jump in utility output, surged in June at the fastest pace in 16 months, providing the strongest evidence yet that U.S. manufacturing is rebounding.
Meanwhile, wholesale prices were flat last month, matching the benign performance turned in by consumer prices during June.
Taken together, the two reports Friday helped to ease fears that manufacturing, hardest hit in the 2001 recession, was in danger of faltering again or that inflation, battered by high energy prices, was threatening to get out of hand.
"This is about as close as you can get to a Mary Poppins economy _ practically perfect in every way," said David Wyss, chief economist at Standard & Poor's in New York.
Investors liked the positive economic news. The Dow Jones industrial average rose 11.94 points to close at 10,640.83, the highest close in four months.
Production at factories, mines and utilities rose by 0.9 percent, more than double what had been expected and three times faster than a 0.3 percent rise in May. It was the best showing since a 1.1 percent increase in February 2004.
More than half of the gain came from a 5.3 percent surge in utility output, reflecting a rebound in demand for electricity to power air conditioners in June following an unusually cool May.
Output in the manufacturing sector was up a solid 0.4 percent in June following an even stronger 0.5 percent rise in May. The gains followed two months of declines in factory output which had raised worries about the future of this hard-hit sector.
The strength was led by a 2.9 percent rise in production at auto plants after a 0.4 percent rise in May. Production at auto and auto parts plants had fallen the two previous months.
Analysts said automakers had succeeded in trimming excess inventories, helped by the return of attractive financing offers.
Some manufacturing sectors were still under pressure in June, particularly textiles and clothing plants, where output fell for the third month out of the past four. President Bush, searching for votes to pass a free trade agreement with six Latin American countries, toured a textile plant in North Carolina textile mill on Friday.
The industry has been pushing the administration to re-impose quotas to restrain a flood of Chinese imports into the country since global textile quotas were lifted in January, saying without the protection thousands of jobs will be lost.
Output at mines, a category that includes oil production, rose by 0.4 percent in June following a 0.2 percent May increase. All of the gains pushed the operating rate at factories, mines and utilities up to 80 percent of capacity in June, the highest level in four years.
In a second report, the Labor Department said that wholesale prices were unchanged in June after having fallen by 0.6 percent in May, the largest one-month decline in more than two years.
The good news on wholesale inflation followed a report Thursday showing that consumer prices were also frozen in June after a 0.1 percent drop in May.
But energy price pressures have increased even in July with crude oil costs hitting a record high above $61 per barrel last week while gasoline pump prices rose to a record of $2.33, up 10 cents from the previous week.
Those increases are expected to push inflation higher at both the wholesale and retail levels in July.
Still, analysts said they remained optimistic that the surge in energy costs will not seriously worsen inflation pressures outside of energy. They noted that the core rate of wholesale inflation, excluding food and energy, actually fell by 0.1 percent in June, the first time that has occurred since February.
Economists predicted that the data would prompt the Federal Reserve to continue raising interest rates at a gradual pace with the 10th quarter-point move expected at the next meeting on Aug. 9. Federal Reserve Chairman Alan Greenspan will deliver a Fed economic forecast to Congress on Wednesday.
Stuart Hoffman, chief economist at PNC Bank Corp. in Pittsburgh, said he was not looking for surprises in Greenspan's testimony.
"I think he will stress that the economy is continuing to show pretty solid gains in economic growth with inflation remaining subdued," Hoffman said.
For June, wholesale energy prices were up 2 percent, led by an 8.7 percent jump in gasoline prices, the biggest increase in eight months, but this was offset by a 1.1 percent drop in food costs, reflecting lower prices for beef, fish and poultry.
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