Factory Output Dips 0.1% in July, Raising Optimism

The nearly yearlong deterioration in industrial production slowed in July, raising hopes that the worst may be over for the battered manufacturing sector.

Output at the nation’s factories, mines and utilities fell 0.1% last month, after a 0.9% drop in June, the Federal Reserve reported Wednesday.

July’s reduction was the 10th consecutive monthly decline in industrial production. Still, economists were heartened that the latest decline was smaller than the 0.3% drop they were forecasting.

“The manufacturing sector has been the weakest link of the U.S. economy, but it now appears that the worst is clearly over and that the way has been cleared for an upturn to take place over the next six to 12 months,” said Lynn Reaser, chief economist for Banc of America Capital Management.

Last month’s 0.1% decline was the best performance since output edged up by 0.2% in September, the month before the slide began.

Manufacturers have borne the brunt of the economic slowdown, and many believe industry is in a recession. In response to sagging demand, manufacturers have slowed production and shed 837,000 workers during the 12 months ended in July.

Especially encouraging to some economists is that factory production, down a sharp 1% in June, was flat in July.

A big 4.7% gain in automobile production last month--the largest increase since March--helped to offset a 2.4% drop in production of computers and other high-tech equipment.

Also Wednesday, a Commerce Department report found that businesses whittled inventories of unsold goods in June by a seasonally adjusted 0.4%--on top of a 0.2% reduction--for the fifth monthly decline in a row.

The decline came even as business sales fell by 1.4% in June, the largest drop in nine years, following a 0.9% increase in May.

The Fed’s report also showed that output at gas and electric utilities, which rose by 1% in June, fell by 0.5% in July, reflecting mild temperatures, economists said. At mines, production declined by 0.6%, after a 0.7% drop.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Industrial Production

July: 142.8

Source: Commerce Department