Sturdy U.S. Manufacturing Data Bolster Growth Outlook

industrial production
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.

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