Industrial Output Up a Moderate .2% : Fed Reads Figures as Signs of Easing Inflation Pressure

Industrial production rose a moderate 0.2% in July, but the factory operating rate remained flat, the Federal Reserve Board said today in a report that indicated further easing of inflationary pressures.

Factory use held steady at 83.6% last month after declining 0.3 of a percentage point in June, the central bank said. The rate hit a 10-year high of 84.3% last December. Last month’s operating rate was down from 83.7% a year earlier.

The closer U.S. industry gets to full operating capacity, the greater difficulty it has producing enough to meet demand, leading to shortages and price increases. Analysts generally consider an operating rate of 85% or above as an indication of inflationary pressures.

Straddling Fine Line

The central bank has been straddling a fine line of keeping interest rates high enough to cool inflationary pressures without slowing growth so much that the economy slides into a recession. It began letting rates drop in June as inflation seemed to lessen.

The Federal Reserve said its industrial production index in July stood at 141.7% of its 1977 base, up from 141.4% in June.

The 0.2% increase last month came after revised 0.1% drops in both May and June. Those were the first downturns since the index fell 0.2% in February, which had been the first drop in a year.

The Fed said the July gain mainly reflected a rebound in the output of raw materials and continued strength in business equipment excluding autos.

“In contrast, automobile and truck production fell sharply, and output of construction supplies, on balance, remained weak,” it said.

Factory Operating Rate Dips

Production at manufacturing plants making both durable and non-durable goods rose 0.2%. Output was up 0.3% at mines and oil wells and 0.8% at utilities.

The factory operating rate dipped 0.1 of a percentage point to 83.9% at manufacturing plants, down from June’s revised 84%. The rate had peaked at 84.7% in January.

The rate at factories producing durable goods--big-ticket items expected to last more than three years--fell 0.3 of a percentage point from 82.6% in June.

The rate at factories producing nondurable goods rose to 86.2%, from 86.1% in June.