Industrial Production Up Again in December
A solid December gain at the nation’s factories, mines and utilities finished a good year for industrial America and provided momentum that should help the U.S. economy withstand the Asian financial crisis.
Industrial production rose a seasonally adjusted 0.5% last month after more rapid gains of 0.8% in November and 0.7% in October, the Federal Reserve said Friday.
For the year, production was up 5%. That compares with a 3.5% increase in 1996 and was the best since a 5.4% advance in 1994.
This year probably won’t be as good. Asian buyers of U.S. products are sharply cutting purchases as the value of their currencies plunge. But it won’t be bad either, analysts said.
“We’re entering 1998 with a lot of momentum. We do have a negative influence hanging out there with Asia. But the momentum we have at this point should mean it won’t really derail the economy’s performance,” said economist Priscilla Trumbull of the WEFA Group in Eddystone, Pa.
She expects a 1998 production gain between 3.5% and 4%.
The stock market got a respite from Asian worries Friday after markets in Japan, Hong Kong and Thailand staged rallies. The Dow Jones average of 30 industrial stocks climbed 61.78 points to close at 7,753.55, partly recouping Thursday’s 92.92-point loss.
While last year’s production increase was robust, it didn’t overtax factories or aggravate inflation pressures. Inflation decreased and, except for a quarter-point increase in short-term interest rates last March, the Federal Reserve Board has been on hold.
“So why is there no inflation, and why is the Fed on hold--compared with 1994, when they raised rates aggressively, fearing accelerating inflation?” asked economist David Orr of First Union Corp. in Charlotte, N.C. “The answer is the growth of manufacturing capacity.”
Industrial businesses spent heavily on computers and machinery, increasing their productive capacity by 4.7%.
In manufacturing alone, the 1997 increase was 5.3%.
Despite a robust production increase, enough industrial capacity remained unused to prevent strains. Industry operated at 83.4% of capacity in December. That was the highest since September 1995 and up from 83.3% in November and 82.5% a year earlier. But that’s still comfortably below the levels believed to signal the development of inflationary bottlenecks.
In December, the strongest production gains were for semiconductors, metal products, clothing, tobacco and coal mining and at natural gas utilities. However, auto, truck and parts production sank, and computer production rose more slowly than previous months’ rapid increases.
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Capacity Utilization
Percentage of total capacity, seasonally adjusted:
Dec., 1997: 83.4%
* Source: Federal Reserve Board
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Industrial Production
Index: 1987 = 100; seasonally adjusted
Dec. 1997: 128.1
* Source: Federal Reserve Board
