Factory output spurs US economic growth

Reuters: The US manufacturing output bounced back in February, the latest signal of strength in an economy that is showing clear momentum after a near-stall at the end of last year.

Other reports yesterday showed the biggest increase in consumer prices in nearly four years last month as the cost of petrol surged and a tempering in March of the US consumer sentiment and New York state manufacturing gains.

Factory production increased 0.8% in February after a revised 0.3% decline the month before, the Federal Reserve said. Economists had looked for a 0.4% gain. The increase combined with a big rise in utilities’ output to lead overall industrial production up by 0.7%, a good sign for first-quarter economic growth.

Separately, the Labour Department said its Consumer Price Index (CPI) increased 0.7% last month, the largest gain since June 2009, after being flat in January.

Petrol accounted for about three quarters of the spike in consumer inflation, and so-called core prices advanced just 0.2%, leaving the door open for the Federal Reserve to press ahead with its bond-buying stimulus. Economists had expected the CPI to advance 0.5% In the 12 months through February, it was up 2%, the largest gain since October and acceleration from January’s 1.6%. Core prices, which strip out volatile food and energy costs, increased 2%. While that was also the largest increase since October, economists saw it as being within the Fed’s comfort zone.

Policy makers at the central bank meet next week to assess the economy and are widely expected to keep purchasing US$ 85 billion in bonds per month to spur even stronger economic growth.

Petrol prices rose 9.1% last month, the largest gain since June 2009, after falling 3% in January. Prices at the pump, however, have declined in the past two weeks.

The pick up in inflation eroded household purchasing power, which could hurt spending. Average hourly earnings adjusted for inflation fell 0.6% in February, and were up only 0.1% compared with a year ago.

Consumer sentiment weakened in March. The US consumer sentiment tumbled to its lowest since December 2011 in early March, hit by dissatisfaction with Government economic policies and as fewer Americans expected improvements in growth or the labour market.

The Fed’s report on industrial production further bolstered those expectations. The gain in manufacturing output reflected a big 1.2% jump in the production of long-lasting goods.

Car production rose a sharp 3.6% after a 4.9% plunge in January, the Fed said. In a separate report, the New York Federal Reserve Bank said its ‘Empire State’ general business conditions index slipped to 9.24 in March from 10.04 in February an indication growth in the factory sector could be cooling a bit.



The inflation report showed housing costs maintained their steady rise last month. Owners’ equivalent rent, which accounts for about a third of the core CPI, rose to 0.2% after a similar gain in January.

Apparel prices fell 0.1% after increasing 0.8% in January. New motor vehicle prices fell to 0.3% after gaining 0.1% the prior month. Prices for used cars and trucks rose for a second straight month.