U.S. industrial production increased 1.1 % in May

Carlos Torres

Wednesday, June 16, 2004 | 9:13 a.m.

U.S. industrial production increased 1.1 percent in May, the most in almost six years, as utility output surged and companies made more electronics and business equipment, a report from the Federal Reserve showed today.

The rise in production at the nation's factories, mines and utilities followed April's 0.8 percent increase, the Fed said in Washington. The proportion of industrial capacity in use rose to 77.8 percent, the highest since May 2001, from 77.1 percent.

Industrial production is up 6.3 percent from May of last year, the biggest 12-month increase since a 7 percent gain in the year ended May 1998. With inventories at record lows relative to sales, production and employment are likely to keep growing and give the economy a boost, economists said.

Manufacturing "is doing a little more of the heavy lifting in the economy," said Jonathan Basile, an economist at Credit Suisse First Boston Inc. in New York. "Businesses are investing more and hiring more and that is a good sign for the sustainability of the expansion." Economists at Credit Suisse had forecast a 1.2 percent gain in production.

Factory employment last month rose the most in almost six years, the latest Labor Department statistics showed, as sales improved and businesses tried to speed assembly lines to keep up with demand.

Economists had expected a 0.8 percent increase in industrial production, according to the median of 69 forecasts in a Bloomberg News survey. The May rise was the largest since a 2 percent increase in August 1998, when production surged after the return of striking General Motors Corp. workers.

The Commerce Department said today in a separate report that home builders broke ground on more homes than expected in May, and building permits rose to the highest level in more than 30 years. Housing starts totaled 1.967 million at an annual rate last month, down 0.7 percent from April.

Builders are starting work on contracts signed earlier in the year when mortgage rates were near record lows. Year-to-date, the pace of housing starts has averaged 2.12 million, on pace to surpass last year's total of 1.85 million, the most in 25 years. The U.S. has had the best five months of job growth since 2000, which is helping to support housing even as mortgage rates rise.

Housing starts were forecast to fall to a 1.95 million rate, the median of 62 economist forecasts in a Bloomberg News survey, from the 1.969 million originally reported in April.

Electric and gas utility production rose 3.3 percent last month, the biggest rise since January, after rising 1.5 percent in April, the Fed's report showed. Mine production decreased 0.4 percent last month after rising 0.9 percent.

Work at factories, which accounts for almost 90 percent of industrial production, rose 0.9 percent last month, the most since February, after rising 0.7 percent in April. Production of electronics increased 5.1 percent and was 31.6 percent higher than in May 2003.

Business equipment production, which includes transportation and information processing equipment, rose 1.4 percent in May after increasing 1 percent the previous month. Production of technology equipment, such as computers, communications gear and semiconductors, jumped 3.5 percent last month after increasing 2.1 percent.