SMILE, IT'S HAPPY FACE TIME......!
<<<Reuters Finance News
Analysts Welcome Output, Inventory Data
Aug 15 5:40pm ET
By Jonathan Nicholson
WASHINGTON (Reuters) - Two U.S. economic reports released
on Wednesday showed factory production halted its long slide in
July and U.S. businesses pared their inventory levels in June,
in positive signs for the economic outlook.
The Federal Reserve said overall industrial output -- of
which factory production is the biggest component -- slipped
0.1 percent in July. It was the 10th straight month production
has declined, and factories, mines and utilities operated at a
slow 77.0 percent of their full capacity.
But analysts latched on to the unchanged reading in
manufacturing output, calling it a glimmer in a sector which,
buffeted by domestic oversupply and a strong dollar that hurts
sales overseas, may have put the worst behind it.
"I think we're witnessing a trough," said Gordon Richards,
an economist with the National Association of Manufacturers.
"We should be seeing a return to positive industrial
production, if not by August, then probably by September."
Separately, the Commerce Department said inventories at
U.S. businesses fell by 0.4 percent in June, their fifth
consecutive decline. Business sales fell a sharp 1.4 percent.
The production number was better than Wall Street had been
projecting, while the inventory decline was a bit bigger than
the 0.3 percent that had been anticipated.
Stock markets largely looked past the reports and focused
on weakness in technology shares. The Dow Jones industrial
average was off by 0.64 percent by the close of trading, while
the tech-laden NASDAQ composite fell by 2.32 percent.
SLUMP STATUS DEBATED
Since last year, the U.S. manufacturing sector has had the
most difficulty in dealing with a slowing U.S. economy.
Factories shed 49,000 jobs in July, the latest in a string of
losses that started in 2000.
Businesses, in a rush to invest in new and more productive
equipment, had over-invested in big-ticket items, which left
excess capacity when demand fell. That slump in business
equipment investment acted as a drag on economic growth in the first and second quarters of the year, with the second
quarter's 0.7 percent pace of growth the lowest since 1993.
The continued decline in demand led manufacturers, in
particular the NAM, also to focus on the strength of the U.S.
dollar against other currencies. A stronger dollar makes
American-made goods more expensive in foreign markets. But
efforts by the NAM to get the Treasury Department to back down
from its unswerving greenback support have been rebuffed.
Now signs are emerging that the slump has hit bottom. The
Fed's report showed a bounceback in the automotive sector, with
vehicle production rising to an annual rate of 12.09 million,
the fastest pace since October 2000. And while July output
posted a 10th straight month of decline, it was the smallest
decrease since the string of drops began in October.
"The manufacturing recession is over, probably," said Sung
Won Sohn, chief economist with Wells Fargo & Co. in
Minneapolis.
Other analysts are less convinced, however, noting weakness
remains in other areas, especially high tech goods. Production
of business equipment was off by 0.3 percent in July.
"The results are encouraging but enthusiasm should be
restrained," said Mike Moran, chief economist with Daiwa
Securities America in New York. "The July results followed the
worst showing of the year and may have simply reflected
month-to-month volatility."
CLOUDS FED OUTLOOK
Wednesday's other release, business inventories, was more
ambiguous. While inventories fell, sales fell much faster,
leaving a key measure of inventory bloat higher.
Commerce said the inventory-to-sales ratio, which measures
how long it would take to completely draw down current stocks,
rose to 1.43 months in June from 1.42 months in May. The ratio
at retailers, however, dipped in June, indicating leaner
inventories on store shelves.
The Federal Reserve's Open Market Committee will mull
Wednesday's figures at its next policy-setting meeting, set for
Tuesday. Most analysts expect the central bank to trim interest
rates another quarter of a percentage point, but a recent
string of marginally better-than-expected economic data is
raising questions about the need for much more than that.
"When you look at the overall economy, I can realistically
say it bottomed in the second quarter," Sohn said.
That sentiment was echoed by Treasury Secretary Paul
O'Neill. In a televised interview Wednesday, O'Neill said, "I
think we're on the threshold of improvement.">>>
Namaste!
Jim |
