US industrial production rises strongly; homebuilding tumbles

WASHINGTON: US industrial production increased solidly in April amid an acceleration in manufacturing and mining output, the latest indication that the economy was gathering momentum early in the second quarter.
The upbeat report from the Federal Reserve on Wednesday came on the heels of data on Tuesday showing a pickup in consumer spending in April. But a sharp drop in homebuilding and permits last month put a wrinkle on the brightening economic picture.
Industrial production expanded 0.7 per cent in April, matching March’s increase, the Fed said. Manufacturing output, which accounts for more than 70 per cent of industrial production, rose 0.5 per cent as a 2.3 per cent increase in machinery production offset a drop in production of primary metals and fabricated metal products.
The industrial sector is being supported by strengthening domestic and global economy, a still-weak US dollar and tax cuts. But there are concerns that trade tensions between the United States and China could slow momentum.
“Risks continue to hover over our industrial outlook, mainly related to trade policy,” said Gregory Daco, chief US economist at Oxford Economics in New York. “China-US trade tensions are slowly rising while strains between the US and Europe are becoming more visible following the Trump administration’s decision to back out of the Iran nuclear deal.”
A survey early this month showed trade policy as the top concern for manufacturers, with varies industries complaining that the Trump administration’s tariffs on steel and aluminium imports had pushed up commodity prices.
Some manufacturers reported that “business planning is at a standstill” as a result of the tariffs.
Last month, mining production increased 1.1 per cent, boosted by a 3.0 per cent rise in oil and gas well drilling. Utilities production advanced 1.9 per cent.
Industrial capacity utilization, a measure of how fully firms are using their resources, increased 0.4 percentage point to 78.0 per cent, its highest reading since March 2015. It remains 1.8 percentage points below its long-run average.
Officials at the Fed tend to look at utilization measures as a signal of how much slack remains in the economy — how far growth has room to run before it becomes inflationary.
Strong industrial output and a pickup in consumer spending support expectations of second-quarter growth around a 3 per cent annualized rate. That should allow the Fed to raise interest rates next month. The US central bank increased borrowing costs in March and forecast at least two more rate hikes for this year. The economy grew at a 2.3 per cent pace in the first quarter. — Reuters