February 15, 2012 / 3:15 PM / 8 years ago

WRAPUP 3-US manufacturing, housing data flag underlying strength

* Manufacturing production advances as autos surge
    * Overall industrial output flat on mining, utilities
    * New York state factory activity index at 1-1/2-year high
    * Home builder sentiment near five-year high in Feb

    By Lucia Mutikani	
    WASHINGTON, Feb 15 (Reuters) - U.S. manufacturing
output rose in January and a gauge of factory activity in New
York state hit a 1-1/2-year high in February, showing a solid
underpinning for the economic recovery.	
    The firmer tone was also in evidence in another report
 on Wednesday that showed optimism among home builders
approached a five-year high this month, a good omen for the
struggling housing market.	
    The reports added to a run of fairly upbeat data, even
though overall industrial production was flat last month as
unusually mild winter weather weighed on utility output.	
    "What we are seeing here is confirmation of the positive
momentum we have seen in the economy over the past few months,"
said Millan Mulraine, senior macro strategist at TD Securities
in New York.	
    Factory production increased 0.7 percent, the Federal
Reserve said, after an upwardly revised 1.5 percent rise in
December. The December increase was previously reported as a 0.9
percent gain.	
    Manufacturing was buoyed by a 6.8 percent jump in motor
vehicle output. But production at utilities plunged 2.5 percent,
the second straight month of big declines.	
    A 1.8 percent drop in mining production, the first decline
in almost a year, also helped damp industrial output last month.
However, overall production was stronger than first thought in
December, rising 1 percent as opposed to the previously reported
0.4 percent gain. 	
    "The mining sector has been enjoying a renaissance over the
past couple of years and, barring a collapse in oil prices, we
expect that will continue for some time," said Paul Ashworth,
chief U.S. economist at Capital Economics in Toronto.	
    "So everything looks rosy for manufacturers now, but we're
still concerned that Greece's exit from the euro zone sometime
this year will stop the global turnaround in its tracks."	
    Concerns about Greece dominated sentiment on U.S. financial
markets, where the broader Standard & Poor's 500 index 
touched a fresh seven-month high before giving up gains and
turning negative in late afternoon trading. 	
    U.S. Treasury debt prices were little changed
while the dollar was flat against a basket of currencies.	
    Data, including employment, manufacturing and retail sales,
so far suggest the economy got off to a firmer start in 2012,
prompting analysts to scale back expectations of a sharp
pull-back in first-quarter growth and further monetary easing by
the Fed.	
    Minutes of the central bank's Jan. 24-25 policy meeting
released on Wednesday showed a few Fed officials believed a
third program of bond buying or 'quantitative easing' would be
warranted this year to support the economy. 	
    The economy grew at a 2.8 percent annual pace in the last
three months of 2011, with a build-up of inventories accounting
for two-thirds of the rise.	
    Economists believe businesses have enough stock on hand to
meet demand. That, together with a mild recession in the euro
zone as a result of the debt crisis, could take some edge off
the U.S. economy.	
    But there are no signs manufacturing is wilting. A report
from the New York Federal Reserve showed a gauge of factory
activity in New York state rose to its highest level in more
than 1-1/2 years in February. 	
    However, slowing new orders and further declines in unfilled
orders suggested activity in that region could be close to
peaking. There was a rise in shipments and companies increased
hours for existing workers. 	
    Manufacturing remains the main pillar of the economy,
although it only accounts for about 12 percent of gross domestic
product and 11 percent of nonfarm payrolls. 	
    Capacity use in manufacturing rose in January to 77.0
percent, the highest since April 2008.	
    "The manufacturing sector is in a growth spurt, but it is
not a spurt likely to turn sour as it is well diffused in the
manufacturing sector and not producing bloated inventories - it
is the 'real McCoy'," said Michael Montgomery, a U.S. economist	
at IHS Global Insight in Lexington, Massachusetts.	
    There are also signs of green shoots in the housing market,
which has been a drag on the economy, with confidence among home
builders the highest this month since May 2007.	
    Sentiment has increased for five straight months. Builders
have been breaking ground on new residential projects, driven by
rising demand for rental apartments as Americans shift away from
    Home building is expected to add to growth this year for the
first time since 2005.	
    "The true test of the strength of housing construction will
be the health of the spring selling season," said Michelle
Meyer, an economist at Bank of America Merrill Lynch in New
York. "This has been an unusually warm winter, which could be
biasing the data."
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