Sturdy U.S. Manufacturing Data Bolster Growth Outlook

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Craig Warga/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. manufacturing output rose in May and factory activity in New York state accelerated sharply this month, buoying hopes of a strong rebound in economic growth this quarter.

Factory production increased 0.6 percent last month as production increased across the board, the Federal Reserve said Monday. Output had slipped 0.1 percent in April and economists had expected it to rise 0.5 percent last month.

"It reinforces the current narrative of a strengthening in U.S. domestic fundamentals, as the economy continues to build on the post-winter slowdown momentum," said Millan Mulraine, deputy chief economist at TD Securities in New York.

%VIRTUAL-article-sponsoredlinks%In a separate report, the New York Federal Reserve said its "Empire State" general business conditions index rose to 19.28 this month, the highest reading since June 2010, from 19.01 in May. Readings above zero indicate growth.

New orders hit their highest level in four years. Although factory job growth slowed, employers increased hours for their workers.

The reports were the latest evidence the economy was regaining steam after a dismal first quarter, when growth contracted at a 1 percent annual pace.

Data ranging from employment to services industries have pointed to a strong come back in the economy. Growth rate estimates for the April-June quarter range as high as 4 percent.

Federal Reserve officials meeting on Tuesday and Wednesday are likely to view the recent batch of fairly upbeat data as confirmation of underlying strength in the economy, economists said. The Fed is expected to announce further cuts to its monthly bond purchasing program.

Auto Production Surges

Manufacturing output was last month led by a 1.5 percent jump in motor vehicle production. That followed a 0.1 percent drop in April. There were also gains in the production of machinery, computer and electronic products, electrical equipment and appliances, and fabricated metal products.

Production of primary metals slipped.

Mining output rose 1.3 percent in May, adding to April's 1.6 percent increase. But utilities production fell 0.8 percent, declining for a fourth consecutive month.

The rise in manufacturing and mining output helped boost overall industrial production by 0.6 percent in May. It had declined 0.3 percent in April.

The amount of manufacturing capacity in use rose to 77 percent last month, the highest level since March 2008, from 76.7 percent in April.

Overall industrial capacity increased to 79.1 percent from 78.9 percent. It remained 1 percentage point below its long-run average.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy, and how much room there is for growth to run before it becomes inflationary.

Sturdy U.S. Manufacturing Data Bolster Growth Outlook
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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