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U.S. August Industrial Production Rose 0.1%, Less Than Forecast

U.S. August Industrial Production Rose 0.1%, Less Than Forecast

Sept. 14 (Bloomberg) -- U.S. industrial production rose 0.1 percent in August, less than expected, as Hurricane Katrina disrupted oil, gas and chemicals production in the U.S. Gulf Coast region.

The increase in output at factories, mines and utilities followed a 0.1 percent increase in July, the Federal Reserve said today in Washington. The proportion of industrial capacity in use was unchanged at 79.8 percent.

Hurricane Katrina reduced overall production in August by 0.3 percentage point, the Fed said. The Gulf Coast region, where the hurricane came ashore Aug. 29, accounts for a quarter of U.S. crude oil production and has half of the nation's refining capacity.

``Katrina will have more of an impact on September,'' said Steve Ricchiuto, chief U.S. economist at ABN Amro Inc. in New York. ``The utility and mining aspect of industrial production will be down because that's where natural gas extraction and oil rigs are, and a big part of the U.S. isn't absorbing a lot of electricity right now.''

Economists expected industrial production to rise 0.3 percent, the median of 61 estimates in a Bloomberg News survey. Estimates ranged from a 0.2 percent drop in production to a 0.6 percent increase. Factory capacity utilization was forecast to rise to 79.8 from a previously reported 79.7.

Manufacturing, which accounts for about nine-tenths of the industrial-output index, 0.3 percent after a 0.1 percent gain. Output of autos and parts rose 3.7 percent, following 1.9 percent decrease in July, as General Motors Corp. boosted production to replenish inventories depleted after it cut prices to clear out 2004 model cars.

Pre-Katrina

``Pre-Katrina, there were some pretty good things going on in the manufacturing sector,'' John Herrmann, director of economic commentary at Cantor Fitzgerald LP in New York, said before the report. ``Motor vehicle shipments were up. Consumer goods orders were up.''

Utility output fell 0.5 percent, following July's 0.7 percent rise. Mining output, which includes oil and gas production, fell 0.6 percent in August after dropping 1.0 percent in July.

The August industrial production report captured only three days of the production disruptions caused by Hurricane Katrina.

Production of consumer goods including autos rose 0.3 percent in August after falling 0.5 percent in July.

Auto Production

U.S. light vehicle production rose 4.7 percent last month, according to a CSM Worldwide estimate. GM, the biggest U.S. automaker, raised its production target for this quarter after sales surged when it offered employee discounts to the general public.

The sale reduced inventories to less than 700,000 vehicles from 1.2 million cars and trucks in March, Chief Executive Officer Rick Wagoner said at a meeting with analysts last month. The company is running some plants on overtime to rebuild inventories.

Production of business equipment, such as computers and telecommunications gear, fell 0.2 percent in August after gaining 1.6 percent in July, the biggest increase of the year.

Intel Corp. and Texas Instruments Inc., the largest U.S. semiconductor makers, signaled demand for personal computers and mobile phones remains steady during the back-to-school season.

Intel said Sept. 8 that third-quarter sales will rise to a record $9.8 billion to $10 billion on ``strong demand'' for laptops. Texas Instruments raised its sales predictions and said customers are ``bullish.''

Production of defense and space equipment rose 1.4 percent after rising 1.6 percent in July.

Signs of Slowdown

Other recent reports provide evidence that manufacturing, which makes up about 13 percent of the economy, may be slowing from its rapid expansion last year.

The Institute for Supply Management on Sept. 1 reported that manufacturing expanded less than expected in August. The ISM factory index fell to 53.6 last month from 56.6. Factory orders decline in July for the first time since January, the Commerce Department said Aug. 30.

Year-over-year gains in industrial production averaged 3.3 percent in the first seven months of this year. That's less than last year's 4.1 percent average.

Electricity production decreased 0.6 percent after a 0.7 percent gain in July. Electricity demand surged this summer, as the U.S. had its hottest June through August in 111 years of recordkeeping, according to the National Climatic Data Center in Asheville, North Carolina.

Power Demand

Power demand rose 6.1 percent compared to a year ago in the week ended Aug. 27, according to the Washington-based Edison Electric Institute. Power demand set a record last month, rising to 95,259 gigawatt hours for the week ended July 23, 5.3 percent over the previous weekly record set in August 2002, the Institute said.

Next month's industrial production figures will capture the full effect of Hurricane Katrina, which disrupted power production as well as gasoline refining and oil production in the Gulf Coast region.

``We expect most of the hurricane distortion to take hold with the September survey, where we could see the hurricane subtract 0.5 percent to 1 percent from overall production,'' Rick MacDonald, director of research and analysis at Action Economics LLC in Boulder, Colorado, said in a report to clients.

The dip should be short-lived, economists said. A combination of lean inventories and demand for rebuilding supplies may help industrial production recover later in the year.

U.S. inventories fell in the second quarter, subtracting almost 2 percentage points from economic growth, the most since early 2002, according to Commerce Department data. Companies have since been boosting production to keep up with unexpectedly strong demand.

Caterpillar Inc., the world's biggest maker of earthmoving equipment, will raise prices as much as 5 percent next year as mining companies buy excavators and trucks to meet growing demand for copper and coal. The Peoria, Illinois-based company has an order backlog of as much as two years for many of its products.

To contact the reporter on this story:
Bob Willis in Washington at [e-mail].


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