Heat Wave Fuels First Increase In Industrial Production Since February Industrial Sector Remains Soft Despite Small Rise In Production

Americans turned up their air conditioners during July’s heat wave, boosting utility output and helping fuel the first advance in industrial production in five months despite weak factory production.

But although the manufacturing sector remained soft, many analysts contended its recent decline appears to be ending.

“When we look back in January at all of l995, we will find July the last weak number,” predicted economist Eugene Sherman of M.A. Shapiro & Co. in New York.

“The decline in the industrial side of the economy is coming to an end,” agreed Allen Sinai, chief economist with Lehman Brothers in New York.

The Federal Reserve reported Tuesday that industrial production rose a barely perceptible 0.1 percent in July, the first gain since February. It also said output in June, first believed to have risen 0.1 percent, actually fell 0.1 percent.

But it said the July advance was concentrated in utilities, where output shot up 3.6 percent. Manufacturing production fell 0.2 percent in July, the sixth consecutive month without an increase although output was flat in March.

The Fed also reported little sign of inflationary pressures, saying industries were operating at 83.4 percent of capacity in July. The utilization rate was down from 83.6 percent in June and the lowest since 83.2 percent in February 1994.

Although the current rate remains relatively high, it shows that industry still has room to expand without creating serious bottlenecks and price pressures.

Analysts said the weakness in manufacturing was evidence that businesses were continuing to make adjustments to their inventories, which built up earlier this year as consumer spending slowed.

“The worst problems appear to be in the auto sector, which has had to resort to generous incentives to clear cars off dealers’ lots,” said Jerry Jasinowski, president of the National Association of Manufacturers.

The Fed report noted that the drop in factory output was led by a 3.2 percent decline in auto production, although it said output of many other industries also decreased significantly.

An exception, it said, was an increase in production of computers and other business and industrial equipment.

Sherman said the gains in business investment reflect the notion that capital spending is “the major driving force” in the economic recovery.

Production of durable goods - products including cars and computers expected to last more than three years - was down 0.2 percent, after advancing 0.3 percent in June. Non-durable-goods output fell 0.3 percent on top of a 0.6 percent drop a month earlier.

Mining production rose 1 percent following a 0.3 percent gain in June. Gains in coal mining and oil and gas extraction led the increase.

The big utility advance more than erased a 0.9 percent decline a month earlier. Utility output had shot up 1.9 percent in May.

At 121.3 percent of its 1987 average, industrial production was 2.6 percent above its level of July 1994.