Output of Factories Tapers Off; Inventories Rise : Economy: One bright spot in the gloom was a rebound in activity that had stalled because of weather and a rail strike.
Manufacturing activity stagnated in July, the Federal Reserve said Friday in a report whose only bright spot was a rebound in activity that had been lost a month earlier to weather and a rail strike.
In another report, the Commerce Department reported that business inventories, or stockpiles of unsold goods, increased 0.6% in June after declining 0.1% during May, indicating that consumer demand remains weak.
The Federal Reserve said industrial production did increase 0.4% in July. But it attributed the advance to a rebound in coal mining that was suspended during a brief rail strike and to increased utility output because of summer temperatures.
“The manufacturing sector, once the proud engine of growth in the American economy, is barely breathing,” said John M. Albertine, head of a Washington economic forecasting firm. “The economy . . . is coasting to a stop.”
Economic forecaster Laurence H. Meyer of St. Louis concurred, saying recent growth in the manufacturing sector has run its course. “There’s just not enough demand to justify an increase in production,” he said.
“Manufacturing output . . . was unchanged last month,” the Fed said.
It also said that industrial output fell further in June than first believed. It revised the drop to 0.4% from its initial estimate of 0.3%.
In the inventories report, the Commerce Department said businesses boosted their inventories by 0.6% in June, while improving their sales by 1.6%. But much of the sales activity was on the manufacturing and wholesale levels.
Retail sales actually fell 0.3% in June as overall economic activity weakened. That, St. Louis forecaster Meyer contended, led to an unanticipated and unwanted buildup in stockpiles that is unlikely to continue in the immediate future.
The Commerce report said inventories totaled a seasonally adjusted $833.4 billion, up from $828 billion in May and the highest level since they reached $838.5 billion in February, 1991. Sales totaled $555 billion, up from $546.1 billion a month earlier and the largest increase since a 1.8% advance in April, 1991.
Still, Kermit Baker of Cahners Economics in Newton, Mass., said that he expects businesses “to sit back on their hands and wait” until they see evidence of an improving economy.
The Fed report said production at manufacturing plants making both durable and non-durable goods was unchanged in July after falling 0.2% in June.
“Much of this weakness is attributable to curtailed motor vehicle production, but output in some other major industries, such as textiles, furniture, instruments and electrical machinery, also dropped back,” it said.
“In addition, output of aerospace and miscellaneous transportation equipment, which has been weak for some time, fell further in June and July,” it added.
The Fed said the only notable areas of strength in recent months have been paper, steel and chemicals.
Due in part to a 4% decline in production of automobiles and light trucks, output of usually expensive and long-lasting durable goods also was unchanged in July after dropping 0.6% a month earlier.
“Autos had been one of the few bright lights earlier this year,” Baker said. “It now looks like the rebound has fizzled.”
In another report, consumer confidence, as measured by a “sentiment index” invented by economists, declined in early August as mounting job insecurity made Americans anxious about the state of the economy.
The University of Michigan consumer sentiment index dropped in early August to 75.3 from 76.6 in July, market sources said. The index uses a base of 100 in 1966.
“We’re above recession levels, but only barely,” said Carl Palash, economist at MCM Moneywatch Inc.
The latest figures are part of a broader trend that shows consumers holding back on their spending and paring their debt, fearful for their jobs after the boom years of the 1980s.
In the Fed’s production report, textile output was down 1.8% and apparel output 2.3%. That helped push production of non-durable goods down 0.1%.
Industrial Production
Seasonally adjusted index, 1987 = 100
July, ‘92: 108.9
June, ‘92: 108.5
July, ‘91: 108.1
Source: Federal Reserve Board
Capacity Utilization
Seasonally adjusted percent of toal capacity
July, ‘92: 78.9%
June, ‘92: 78.7%
July, ‘91: 80.8%
Source: Federal Reserve Board
