I think these manufacturing numbers indicate that interest rates are just about peaking with a soft landing ahead. The economy is barely slowing and inflation is not plunging (if in fact inflation was not a problem like many asserted, then Greenspan's six interest rate increases should have already thrown inflation into big negative numbers, instead they are just neutral and gas is on an upward path). I think when the last half point increase starts to take affect, then it should be perfect, since the stock market will be kicking back into high gear offsetting it.
I know demand for electronic components is going nuts. A networking equipment company I know of, was telling me they had to go out on the gray market and pay 10 times the normal price to get capacitors, since leadtimes were quoted at 52 weeks. Normally they would pay around $7.5 per assembly but were forced to pay around $82. That's the kind of inflation we don't need. Hopefully things will continue to slow and capacity will be added rapidly. I think we may be in for one more 1/4 point increase.
Joe
Thursday June 15 3:00 PM ET
U.S. Industry Output Keeps Rising in May
By Glenn Somerville
WASHINGTON (Reuters) - Hearty demand for high-technology products helped power U.S. industrial output higher for a 17th straight month in May, the Federal Reserve said on Thursday, though consumer goods production weakened.
Output by factories, mines and utilities was up 0.4 percent last month after rising 0.7 percent in both April and March.
Analysts said May's unexpected increase in output reflected a drive by businesses to add to production capacity while there were signs of fading consumer activity in lower production of new cars, appliances, furniture and home electronics.
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The report helped dampen bond prices for fear it meant the economy might not be slowing enough to head off more interest-rate rises when the Fed's policymaking Federal Open Market Committee meets on June 27-28.
Stock prices edged up at midday as traders wrestled with the question of whether the U.S. central bank was on hold for now after raising rates six times in the past year.
The report showed a definite easing in the rate of growth of manufacturing activity, which was up 0.3 percent in May after much bigger gains of 0.6 percent in April and 0.8 percent in March. It was the smallest monthly gain in manufacturing activity since a matching 0.3 percent rise last September.
``I think that definitely we are slowing down,'' said economist Cynthia Latta of Standard & Poor's/DRI in Lexington, Mass., who added she did not expect another interest-rate increase this month.
``The housing market has peaked and we're not going to get any more positive growth on that and new vehicle sales, while still strong, show no more growth so those two key sectors will produce some moderation in GDP (gross domestic product) growth,'' Latta said.
The Fed report said the big automakers scaled back their annual assembly rates for new cars and trucks to 13.3 million in May from 13.4 million in April.
But the president of the Richmond Federal Reserve Bank, Alfred Broaddus, helped keep markets nervous by commenting that he still saw a need for higher U.S. interest rates even though he saw a few signs of economic slowing.
``In order to prevent a reemergence of inflationary pressures and, in doing so, to sustain the expansion, U.S. monetary policy must allow short-term interest rates to rise,'' he told the Austrian National Bank's annual economics conference in Vienna.
As a voting member of the Fed's policymaking committee on interest rates, Broaddus' comments quickly rippled through global markets.
Federal Reserve Bank of Chicago President Michael Moskow, meanwhile, said he was concerned about inflationary pressures stemming from a supply-demand imbalance.
``As we look forward to the forecast we're still seeing a period where aggregate demand is exceeding potential supply in the economy,'' Moskow said after delivering a speech to the bank's economic forum meeting in Grand Rapids, Michigan.
Production of all types of consumer goods fell by 0.1 percent last month after rising 0.5 percent in April. Earlier this week, the Commerce Department said sales by retail stores fell for a second straight month in May, the first time in nearly three years that there were two consecutive months of weaker retail business.
Businesses ran at 82.1 percent of their maximum capacity during May. That was unchanged from April and remained at rates well below levels around 85 percent which can arouse concern about production bottlenecks that could foster inflation.
Besides the slower rate of increase for manufacturing, utilities output rose 1.4 percent in May, only about half the 2.6 percent jump in April. Mining production was up 0.3 percent following a 0.4 percent April gain.
Within the manufacturing sector, the Fed said production of business equipment -- which includes computers --gained 0.7 percent last month after a 1.1 percent rise in April.
Economist Richard Yamarone of Argus Research Corp. in New York said the May pickup in overall output was not shocking, since it takes time to slow the world's largest economy.
``As the economy begins to moderate, we'll get these sporadic spurts of growth -- like an engine running out of gas,'' Yamarone said. ``We suspect the trend will remain moderation.''
Separately, a monthly survey from the regional Federal Reserve Bank of Philadelphia said manufacturing activity in the mid-Atlantic region grew at the slowest pace in 19 months during June. Its index of business activity dipped to 1.7 in June from 20.2 in May, the lowest reading since November 1998.
A third report, from the Labor Department, confirmed any slowdown still was modest, as the number of newly-idled workers fell a sharp 16,000 to 296,000 last week. But a four-week moving average, which smoothes out week-to-week volatility, edged up to 295,750 claims from 291,250 a week earlier.
The Fed's policymaking Federal Open Market Committee set the conditions for curbing growth by pushing short-term interest rates higher six times in the past year, aiming to curb consumer spending.
The National Association of Manufacturers argued there was no sign of economic overheating to justify more rate rises. ''Increased output of business equipment means the economy is adding more capacity, enabling firms to respond to higher demand with increased production rather than with price hikes,'' said association economist Gordon Richards. |
