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Business Equipment, Autos Spurred Industrial Production in May With AM-Economy Bjt

June 15, 1988

WASHINGTON (AP) _ A boom in the manufacture of business equipment and a pickup at auto plants helped boost U.S. industrial production by a moderate 0.4 percent in May, the government said Wednesday.

It was the eighth month in a row without a decline in an index measuring output at the nation’s factories, mines and utilities and a further sign of the resurgence of U.S. manufacturing, which has enjoyed rising export sales because of the decline in the value of the dollar.

The Federal Reserve said the May advance followed a stronger gain of 0.6 percent in April, revised slightly from a previous estimate of 0.7 percent.

With the latest growth, overall industrial production now stands 6.1 percent higher than it was a year ago.

Production gains are occuring at the same time that consumer spending is softening. According to a separate report Wednesday from the Commerce Department, retail sales rose a feeble 0.1 percent in May after declining 0.4 percent in April.

″What’s happening in industrial production is consistent with the fact that we’re shifting a large chunk of economic activity to the export sector,″ said William Dunkelberg, dean of Temple University’s school of business.

″Manufacturing is really the hot spot in the economy, and it probably will be for a number of years. It will be where the jobs are created,″ he said.

The May increase was about in line with expectations. Economists had predicted a good showing based on a pickup in production at auto factories.

The output of motor vehicles in May surged to an annual rate of 7.5 million units, up from the 7 million unit rate in April and a 6.6 million rate in March.

However, retail sales of autos were off 1.2 percent in May and 0.8 percent in April, and some analysts expressed fear that stepped up production could lead to a buildup in auto inventories and another round of price incentives by dealers looking to move cars off their lots.

But Michael Penzer, senior economist of the Bank of America in San Francisco, said auto production was weaker during the first three months of the year when sales were stronger.

″Auto assemblies now are really pretty much matching auto sales. ... You might even argue that there’s room for a little bit of extra auto building,″ he said.

The Federal Reserve also noted what it called ″robust gains″ in the output of business equipment. Jumps of 0.8 percent in both May and April put production 10 percent ahead of a year ago.

That fits in with previous reports showing that businesses plan to spend more on modernization and expansion this year to meet export demand.

Areas of weak growth or decline include food, appliances and other goods for the home, plus gasoline and heating oil.

The May report showed that output in the manufacturing sector climbed 0.4 percent, reflecting a 0.9 percent pickup in durable goods, ″big ticket″ items expected to last three or more years, and a 0.1 percent decline in production of non-durable goods.

Output in the mining industry fell 0.8 percent in May, following a 1.9 percent increase a month earlier.

Production at the nation’s utilities rose 0.7 percent in May after a 0.8 percent decline the month before.

The various changes left the industrial production index in May at 136.0 percent of the 1977 annual average, up from 135.5 in April.

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