US industrial production reveals biggest 8-month decline in April

16 May 2013

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Industrial production fell in April the most in eight months, indicating American manufacturers would not be able to provide support for an economy beset by weaker global markets and federal budget cuts, Bloomberg said in a report.

The larger-than-forecast 0.5 per cent output decline at factories, mines and utilities came after a revised 0.3 per cent gain that was weaker than first reported, according to Federal Reserve figures. A rise in homebuilder optimism indicated housing remained the bright spot of the economy, the report said.

According to analysts, faster gains in employment coupled with a pickup in overseas markets were needed to drive demand, which would help to spur orders and inventory building and keep assembly lines running at American factories.

A European recession that stretched to a record sixth quarter and slower growth in China were affecting sales for US companies such as Deere & Co. A second straight fall in factory production coupled with limited inflation showed Fed policy makers had room to maintain record monetary stimulus as they tried to bolster the expansion.

Stocks were up, pushing up the Standard & Poor's 500 Index to another record, with the production figures giving rising support to sentiment that the Fed would not be in a rush to cut back on stimulus. The S&P 500 was up 0.5 per cent to 1,658.78 at the close in New York.

Meanwhile, the euro-area economy shrank more than forecast in the three months through March, stretching a recession that started at the end of 2011. Gross domestic product in the 17-nation euro zone was down 0.2 per cent following a 0.6 per cent decline in the previous quarter, according to the statistics office of the EU in Luxembourg.

Deere cut its global construction and forestry equipment sales forecast to a decline of about 5 percent in the year through October, as against a previous projection for a 3 per cent increase.

The largest agricultural-equipment maker in the world cut its full-year equipment sales forecast following cold, wet weather slowing demand for construction and turf-care machinery in North America.

In another report AP said, Ford, GM, Chrysler and Nissan all reported double-digit US sales increases, in April for car and truck sales in six years. Car sales rose steadily this year after reaching a five-year high in 2012.

Auto output was up 10.2 per cent over 12 months ending in March, according to the AP report.

US factories may also be benefiting from improved European conditions. Industrial production in the 17-European nations that use the euro currency was up 1 per cent in March, which was double the gain that had been expected raising hopes that the recession in the currency bloc had eased or even ended.

That would be good for US manufacturers, who had seen weakening export sales to Europe due to Europe's prolonged debt crisis.

Other data on US manufacturing had been disappointing as the Institute for Supply Management said that its index of manufacturing activity slowed to a reading of 50.7 in April, the  lowest reading this year. A reading of 50 plus shows expansion.

According to some analysts, some companies might be worried that across-the-board government spending cuts were bearing down on economic growth this year. Also sales could be affected by an increase in Social Security taxes, that had cut take-home pay for most Americans.

The consumer had thus far remained resilient in the face of higher taxes.

The overall economy registered an annual growth rate of 2.5 per cent in the January-March quarter, on the back of the fastest rise in consumer spending in over two years.

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