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Factory Use, Building Data Point to Cooling Economy

From Reuters

Industrial output leveled off last month, while construction of new houses and apartment buildings fell sharply--evidence that economic growth may be moderating, the government said Thursday.

The total output of American factories, mines and utilities failed to rise in February for the first time in a year, after a 0.4% increase in January, the Federal Reserve Board said.

Even so, industrial production was still 5% above its year-ago level, the Fed said.

Manufacturing industries downshifted slightly in February, operating at 84.3% of their capacity after using 84.5% in January, the highest rate since October, 1979, the Fed said.

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The rate measures the amount of production capacity American factories, mines and utilities put to use.

In a separate report, the Commerce Department said construction of houses and apartment buildings fell 11.4% in February after jumping 7.2% in January.

The February decline, the largest monthly drop since last May, left housing starts at a seasonally adjusted annual rate of 1.50 million units. The rate had reached an almost two-year high of 1.69 million units in January, when mild temperatures spurred unusually high construction activity.

Although the home building industry has been in a downward trend for more than a year, the less frantic pace of activity in the booming manufacturing industries suggests that the economy may be settling down to a more moderate growth rate, economists said.

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Business Booming

Federal Reserve Board Vice Chairman Manuel Johnson told reporters that the latest data is “consistent with the notion of some moderation in the economy.”

Manufacturers have been benefiting from booming export sales as well as growing demand for a wide array of business equipment from American companies that are seeking to expand their production capacity.

Export-related industries appeared to be the busiest last month, while the auto industry was among the slowest, in part because of sagging demand caused by rising interest rates that the Fed engineered to slow the economy, economists said.

“We expect to see growth slowing over the course of this year,” said Priscilla Trumbull of the WEFA Group, a Bala-Cynwyd, Pa., economic forecasting firm.

“Automobiles will be a bit of a drag on industrial production,” she said. “Business equipment output will continue to be a positive influence, and that’s largely because of the export sector and capital spending.”

Production of business equipment rose a solid 0.8% last month after a 1.0% January rise.

Economists said slower growth in manufacturing would ease some of the upward price pressure on materials and wages in those industries that have been contributing to inflation. But they said growth is not expected to slow drastically.

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“You’re talking about an economy that has rebounded pretty quickly and shown good strength and now has settled down a little bit,” said economist Tom Megan of Evans Economics in Washington. “But we’re not going to fall to zero growth.”

sh Decline Expected

The operating rate for factories alone last month was 84.6%, down from 84.8%, the Fed said.


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