WRAPUP 2-U.S. manufacturing sector regaining some momentum

Mon Sep 16, 2013 1:39pm EDT

* Industrial production rises 0.4 percent in August
    * Manufacturing output up 0.7 percent as autos surge
    * New York state manufacturing slows a bit but new orders up

    By Lucia Mutikani
    WASHINGTON, Sept 16 (Reuters) - U.S. factory output surged
in August as the pace of motor vehicle assemblies jumped to a
six-year high, a hopeful sign for the economy after a slow start
to the third quarter.
    Although another report on Monday showed a slight pullback
in factory activity in New York state this month, businesses 
were upbeat about the future. In addition, gauges of new orders
and shipments in the state jumped, all pointing to a pick-up in
manufacturing after a speed bump in the spring.
    "Growth in the manufacturing sector is picking up and will
run faster over the balance of the year than has been the case
in recent months," said John Ryding, chief economist at RDQ
Economics in New York. 
    Manufacturing production advanced 0.7 percent, the Federal
Reserve said. The rise, which more than reversed the prior
month's 0.4 percent drop, helped to lift overall industrial
production 0.4 percent.
    Factory output had lagged solid gains in the Institute for
Supply Management's index of manufacturing activity.
    "The sharp recovery in the ISM since May followed now by
this surge in manufacturing output are encouraging signs that
the spring soft patch in factory activity is over," said Ted
Wieseman, an economist at Morgan Stanley in New York.
    In a separate report, the New York Federal Reserve said its
Empire State general business conditions index slipped to 6.29
in September from 8.24 last month. A reading above zero
indicates expansion.
    Economists cautioned against reading too much in the
step-back in activity, saying it was not a reliable indicator of
national manufacturing. 
    Even as activity in the state slowed, businesses were
confident about the future. The survey's index of six-month
business conditions approached a 1-1/2 year high in September, a
good sign for business spending. 
    In addition, a gauge of new orders rose sharply after almost
stalling in August and shipments surged to their highest level
in more than a year.
    
 
    
    ECONOMY EXPANDING STEADILY
    The improvement in industrial output last month pointed to
some underlying momentum in factory activity, which supports
views of only a mild slowdown in economic growth this quarter.
    That should keep the Federal Reserve on course to announce
cuts to its monthly bond purchases when policymakers meet on
Tuesday and Wednesday to assess the economy's health.
    "The economy continues to expand at enough of a pace where
we are creating jobs and helping to bring down the unemployment
rate," said Gus Faucher, senior economist at PNC Financial
Services Group in Pittsburgh. "I would not be surprised to see
an announcement (on tapering) on Wednesday."
    Gains in manufacturing output last month were led by a 5.2
percent rebound in auto assemblies, which had slumped 4.5
percent in July. It was the largest increase since November and
it took assemblies to an 11.25 million-unit rate, the highest
since June 2007.
    There were also increases in the production of consumer
goods, high-tech equipment, machinery, aerospace and electrical
equipment and appliances, among others.
    Utilities output fell for a fifth consecutive month in
August, a decline economists blame on a relatively cool summer
and difficulties adjusting the series for seasonal fluctuations.
    Mining production rose 0.3 percent last month.
    The amount of industrial capacity in use edged up to 77.8
percent from 77.6 percent in July. Capacity use, which can
indicate how much factories can ramp up production before
economic growth becomes inflationary, is still 2.4 percentage
points below its long-run average.
    "There is no evidence of any inflation pressure at this
point in the production cycle," said Joseph LaVorgna, chief
economist at Deutsche Bank Securities in New York.
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