Your Economy (No Politics)

[Bullwinkle]

U.S. March Industrial Production Rises 0.6%; Plant-Use at 81.3%
Carlos Torres in Washington


April 14 (Bloomberg) -- Industrial production in the U.S. rose 0.6 percent last month as manufacturers benefited from growing demand at home and abroad.

The increase in production at the nation's factories, mines and utilities last month followed a 0.5 percent gain in February, the Fed said today in Washington. The proportion of industrial capacity in use rose to 81.3 percent, the highest in more than five years, from 81 percent.

Companies such as Boeing Co. are receiving more overseas orders as growth in Europe and Japan increases. American businesses are also expanding factory space and updating equipment as resources become scarce. Those capacity constraints pose a risk to inflation that may cause Fed policy makers to raise their target interest rate at least once more.

``There is a lot of momentum in this economy,'' Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto, said before the report. ``Consumer spending is continuing to march along, business spending is solid and you have a pick up in foreign demand.''

Economists expected a 0.5 percent increase in industrial production, according to the median of 68 forecasts in a Bloomberg News survey, following February's previously reported 0.7 percent increase.

Industries used 81 percent of capacity on average over the last three decades, according to Fed data. Higher-than-average operating rates increase the risk of bottlenecks in the production process that will encourage manufacturers to raise prices. Capacity utilization in March was the highest since September 2000, today's report showed.

Fed's Kohn

``The capacity utilization rate and unemployment rate have recently reached zones that on occasion in the past have been associated with the beginnings of upward pressure on inflation,'' Federal Reserve Governor Donald Kohn said in a speech yesterday. ``Given the apparent strength in demand and the narrowing of margin of unused resources, I am focused on making sure that inflation and inflation expectations remain well anchored.'' Fed officials next meet on May 10.

Work at factories, which accounts for almost 90 percent of industrial production, rose 0.5 percent last month after falling 0.1 percent in February. Production of consumer durable goods, which include automobiles, furniture and electronics, increased 0.3 percent after decreasing 0.1 percent the previous month.

Production of autos and parts rose 1.5 percent after declining 1.1 percent. Manufacturing production excluding autos rose 0.5 percent after a 0.1 percent decrease.

Business Equipment

Business equipment production, which includes transportation and information processing equipment, increased 0.8 percent in February after rising 0.2 percent the previous month. Production of technology equipment, such as computers, communications gear and semiconductors, rose 2.7 percent last month, the most since August, after increasing 1 percent.

Production of non-durable consumer goods, which include food, clothing, and paper products, rose 0.5 percent in February after increasing 0.9 percent the previous month.

Electric and gas utility output rose 0.5percent last month. Mine production increased 0.9 percent last month after falling 0.7 percent.

Exports in January and February were, respectively, the first- and second-highest on record, according to figures released two days ago from the Commerce Department. Gains were paced by increasing foreign demand for capital equipment, such as aircraft.

Commercial Aircraft

Boeing, the world's second-largest commercial aircraft maker, delivered 20 aircraft to foreign buyers in February, the most in six months. The Chicago-based manufacturer signed an order agreement this week with the Chinese government for 80 airliners. That followed an order for 20 aircraft booked in January as China's airlines expand their fleets in the world's fastest growing major economy.

An index reflecting export demand averaged 57.6 in the first quarter, the highest in almost three years, according to a report from the Institute for Supply Management earlier this month. Readings greater than 50 signal growth. Transportation and computer equipment were among the categories seeing the biggest pickup in demand, the Tempe, Arizona-based grow said.

``Over time, the balance of our business is going to shift more and more to international,'' Lee Roberts, chief executive officer of FileNet Corp., said in an April 12 interview. Revenues from overseas will ``gradually'' approach 50 percent of the total, up from about the current 32 percent, he said. Costa Mesa, California-based FileNet makes software for managing and retrieving digital documents.

Investment Plans

American companies are also loosening their purse strings in order to upgrade equipment as demand improves. U.S. chief information officers expect to spend more on information technology over the next 12 months than they planned last quarter, according to a survey by CIO Magazine earlier this month.

Budgets for information technology are expected to increase 8.6 percent over the next 12 months, up from the 7.8 percent increase that was expected in Dec.

Titanium Metals Corp., a maker of titanium parts for airplanes, said this week it will spend $35 million to boost titanium melt capacity at a Pennsylvania plant. Titanium Metals is seeking to boost production amid rising demand from the aerospace industry. It's also expanding a plant in Henderson, Nevada.

http://www.bloomberg.com/apps/news?pid=10000087&sid=aU64pvzWB3.8