Factory Output Jumps 0.7 Percent In January

Factory Output Jumps 0.7 Percent In January
Market News

U.S. factories boosted output last month and December ended up being their best month of growth in five years.

Strong auto sales and growing business investment in machinery and other equipment are keeping factories busy and helping the economy grow.

The Federal Reserve said Wednesday that manufacturing production increased 0.7 percent in January. And output soared 1.5 percent in December, according to an upward revision. That’s the biggest one-month gain since December 2006.

Overall industrial production, which includes output by mines and utilities as well as factories, was unchanged in January. Still, the flat reading was mostly because Americans used less energy to heat their homes during an unseasonably warm winter.

Jonathan Basile, an economist at Credit Suisse, said December and January marked the best two months of growth for manufacturing since the summer of 2009, when the recession ended.

Basile also pointed to a regional survey conducted in February by the Federal Reserve Bank of New York released Wednesday, which showed factory activity in that region grew for the third straight month. That suggests the strong momentum in January carried over into February. And even though a measure of hiring in the New York survey dipped, it still indicated more hiring ahead.

“It looks like we’re set up for a little faster growth in the coming months,” Basile said.

Factory output has risen 16.7 percent from its low point during the recession, in June 2009, according to the Fed’s industrial production report. It is still 7.1 percent below its December 2007 peak.

In January, auto production climbed 6.8 percent – the biggest gain since July 2010. That coincides with best growth in car sales in more than two years.

Industrial machinery production increased 2.2 percent, after an even larger gain in December. Computer and electronics production moved up 1.4 percent.

Two strong months of manufacturing growth are among other encouraging signs that show the economy could grow at a steady pace this year. Five straight months of solid job growth has lowered the unemployment rate to 8.3 percent, the lowest level in nearly three years.

Several factors could weigh on growth this year. Gas prices are rising again. Europe’s financial turmoil could weaken demand for U.S. exports. And another year of weak pay increases could force consumers to cut back on spending.

Still, the economy is growing and manufacturing is accelerating. That has helped drive the slow but steady recovery.

The economy grew at an annual pace of 2.8 percent in the final three months of last year, a full percentage point higher than the previous quarter.

Factory activity expanded at the fastest pace in seven months in January, according to a private survey by the Institute for Supply Management. New orders and order backlogs rose at the fastest pace in nine months.

Manufacturing companies have strongly boosted their efficiency in recent years, automating many plants and processes. That’s allowed them to produce more with fewer workers.

Still, many are hiring. The government said factories added a net 50,000 workers in January, the most in a year. Manufacturers added a net 235,000 jobs in 2011, the biggest annual rise since 1997.

Another positive sign: the average work week for manufacturing employees increased last month.

“The manufacturing sector is on a tear,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

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