Factory output boosts economy
Lower food, energy prices should benefit consumers
WASHINGTON – U.S. factories are roaring back from the depths of the recession, cranking out more machinery, vehicles and energy.
Factory production has surged 15 percent above its lows of 21/2 years ago and is helping drive the economy’s recovery.
A jump in manufacturing output last month coincided with other data suggesting that the economy began 2012 with renewed vigor. Wholesale prices are tame. Demand for U.S. Treasury debt should help keep borrowing costs low. Even homebuilders are more optimistic.
Signs “that manufacturing in the U.S. is gaining global market share appears to be growing, and this could be an important dynamic supporting growth in 2012,” said John Ryding of RDQ Economics.
Manufacturing rose 0.9 percent from November to December, the Federal Reserve said Wednesday. It was the biggest gain since December 2010.
Overall output at the nation’s factories, mines and utilities grew 0.4 percent. Warm weather dampened demand for energy produced by utilities.
Over the past year, factory output has risen 3.7 percent. Factories benefited in particular in the second half of 2011 from several trends: People bought more cars, businesses spent more on industrial machinery and computers before a tax incentive expired and companies restocked their supplies after cutting them last summer.
Many economists say manufacturing output should expand further this year, though some expect the pace to slow mainly because of Europe’s debt crisis.
Another contributor to growth could be construction, which is showing signs of life as builders put up more apartments, office buildings and factories. That means construction firms need more manufactured goods, such as drywall, steel beams, glass and copper wires.
Last year’s growth has also fueled more hiring. Factories added 23,000 jobs in December, the most since July. That helped reduce the unemployment rate to 8.5 percent, the lowest level in nearly three years.
However, Europe’s debt crisis has begun to dampen demand for American exports. That trend, should it continue, could slow manufacturing and threaten growth this year.
Businesses are starting to see some relief from high energy and food prices, which should benefit consumers later this year.
The producer price index declined 0.1 percent in December, the Labor Department said. The index measures price changes before they reach consumers.
“Core” wholesale prices, which exclude food and energy costs, rose more sharply in December – 0.3 percent. But economists downplayed the increase. They cited temporary factors that had pushed auto prices down in October and November.
Overall, wholesale prices are trending lower. They rose 4.8 percent in December compared with the same month a year ago, reflecting in part higher oil and other commodity prices.