Industrial Production Probably Rose as Manufacturing Fuels U.S. Expansion

Industrial Production Probably Rose as Manufacturing Fuels U.S. Expansion

U.S. industrial production probably rose in February for a third month in the last four, indicating manufacturing remains a stalwart of the expansion, economists said before a report this week.

Output at factories, mines and utilities climbed 0.6 percent after a 0.1 percent decrease in January, according to the median forecast in a Bloomberg News survey ahead of Federal Reserve figures on March 17. Other data may show less home construction and contained inflation excluding food and fuel.

Orders are rising at companies like Texas Instruments Inc. (TXN), signaling factories are boosting an economy still held back by housing-market weakness. With wage growth restrained and limited signs businesses are passing along higher energy costs, Fed policy makers meeting this week may stick to their plan of buying Treasuries aimed at bolstering growth.

“Manufacturing has been a driver of the recovery thus far and this will remain the case,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York. “Demand is starting to return and inventories are light relative to that, so restocking will provide a boost. For the Fed, it’ll be fairly status quo on policy, except for some comment about firmer energy and commodity prices.”

The strength in manufacturing continued into this month. The Philadelphia Fed’s general economic gauge, on March 17, and the New York Fed’s Empire State index, two days earlier, will show factory expansion in the respective regions this month, economists forecast.

Orders Rising
“We have seen orders build through the quarter,” Ron Slaymaker, vice president of investor relations for Dallas-based Texas Instruments, said on a conference call with analysts March 8. “Based upon what we’re seeing through the first two months, we would expect that orders will be up solidly compared to the fourth quarter.”

Manufacturing shares have outperformed the broader market over the past year. The Standard & Poor’s 500 Supercomposite Machinery Index has surged 40 percent in the last 12 months through March 11, compared with a 13 percent gain in the S&P 500.

At the same time, expanding economies in Asia and Latin America are generating greater demand for commodities and lifting prices. Escalating turmoil in Libya and unrest in the Middle East have pushed up crude oil. Oil futures the New York Mercantile Exchange have increased about 10 percent this year.

Consumer Prices
The consumer price index, the broadest of three price measures issued by the Labor Department, rose 0.4 percent for a third month, according to the Bloomberg survey median. So-called core prices, which exclude volatile food and fuel, likely rose 0.1 percent after a 0.2 percent gain in January. The figures are due on March 17.

Compared with a year earlier, the core CPI rose 1 percent for a second month, according to the median estimate.

Wholesale costs increased for an eighth consecutive month in February, spurred by higher prices for fuel and other commodities, economists projected ahead of the data due March 16. A day earlier, another Labor Department report may show the cost of goods imported into the country posted the fifth straight monthly gain.

Fed officials meeting March 15 are about half way through their second round of bond purchases that’ll pump $600 billion into the financial system by June. Along with the so-called quantitative easing, they will probably maintain their policy of keeping the benchmark rate near zero.

The central bank’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the smallest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.

Bernanke on Inflation
Higher oil and commodity prices probably won’t cause a permanent increase in broader inflation, and borrowing costs are likely to stay low, Fed Chairman Ben S. Bernanke said in his semiannual monetary policy testimony to Congress.

Experience with such price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told lawmakers on March 2. “The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive.”

The economy’s weak link is housing, which is depressed by foreclosures and falling prices. Housing starts fell 4.4 percent after a 15 percent jump in January that reflected a surge in multifamily units, economists projected ahead of Commerce Department data on March 16.

Builders remain pessimistic. The National Association of Home Builders/Wells Fargo confidence index, due on March 15, rose to 17 this month from 16 in February, according to economists surveyed. Readings below 50 mean more respondents said conditions were poor.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Empire Manu. Index 3/15 March 15.4 16.1
Import Prices MOM% 3/15 Feb. 1.5% 0.9%
NAHB Housing Index 3/15 March 16 17
PPI MOM% 3/16 Feb. 0.8% 0.7%
Core PPI MOM% 3/16 Feb. 0.5% 0.2%
Housing Starts ,000’s 3/16 Feb. 596 570
Housing Starts MOM% 3/16 Feb. 14.6% -4.4%
Building Permits ,000’s 3/16 Feb. 563 570
Building Permits MOM% 3/16 Feb. -10.2% 1.2%
CPI MOM% 3/17 Feb. 0.4% 0.4%
Core CPI MOM% 3/17 Feb. 0.2% 0.1%
CPI YOY% 3/17 Feb. 1.6% 2.0%
Core CPI YOY% 3/17 Feb. 1.0% 1.0%
Ind. Prod. MOM% 3/17 Feb. -0.1% 0.6%
LEI MOM% 3/17 Feb. 0.1% 1.0%
Philly Fed Index 3/17 March 35.9 29.7
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source: bloomberg.com