Rise in Production Dismissed as a Fluke

Industrial production jumped 0.6% in May, the Federal Reserve said Friday, but analysts said the sharp gain was due mainly to a temporary buildup in automobile inventories.

“I think it was somewhat of a fluke,” said economist Paul Getman of Regional Financial Associates in West Chester, Pa. “Excluding motor vehicles and parts, industrial production was up 0.2%. That is more in line with the underlying fundamentals.”

Michael K. Evans, head of Evans Economics Inc., a Washington economic forecasting firm, contended that the inventory building in the auto industry was due to concern over the expiration of the Big Three auto makers’ labor contracts in September.

David Jones, an economist with Aubrey G. Lanston & Co., a New York government securities dealer, noted that the auto makers reported a drop in output in the first 10 days of June.

“So industrial production is showing only temporary strength and will probably tilt in a weaker direction in coming months as auto makers in particular have to scale back production more in line with demands,” he said.

Industrial production has risen each month since January except for April, when it was unchanged. But even the flat April figure was an improvement over the 0.4% decline first reported last month.

The Fed also reported that the operating rate of the nation’s factories, mines and utilities--which usually moves in tandem with industrial production--rose 0.3% to 83.6% in May. The operating rate measures not only output but also changes in productivity levels.

The operating rate at factories producing durable goods rose 0.8% to 82.0%, while the rate at plants making non-durable goods inched downward 0.1% to 84.3%.

The operating rate at mines was unchanged at 88.9%, while it dropped a full 1.0% to 84.9% at utilities.

Los Angeles Times

INDUSTRIAL PRODUCTION May, ‘90: 109.7 Apr., ‘90: 109.0 May, ‘89: 108.3

Source: Federal Reserve Board