US factory output up in Q2, housing improving

A manufacturing facility in Strongsville. The producer price index for final demand increased 0.4 per cent. — AP

US manufacturing output rose at its fastest pace in more than two years in the second quarter, suggesting the economy was regaining enough momentum to lift growth throughout the year.

Other data on Wednesday showed inflation stirring at the factory gate and the housing market, whose recovery stalled late last year, getting back on track.

Factory production increased at a 6.7 per cent annual rate, the quickest pace since the first quarter of 2012, the Federal Reserve said. That was an acceleration from the January-March period’s 1.4 per cent pace.

Manufacturing output, however, increased only 0.1 per cent in June after a 0.4 per cent gain the prior month.

But the strong performance in the second quarter coupled with a report on Tuesday that showed a surge in factory activity in New York state left economists confident the sector was on solid ground and would continue to support the overall economy.

“The backdrop for the manufacturing sector is favorable at the start of the third quarter,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina, who added that the manufacturing sector would continue to drive economic growth in the second half of the year.

The sturdy manufacturing growth helped to lift overall industrial production to a 5.5 per cent pace in the second quarter, the fastest since the third quarter of 2010.

The economy contracted sharply in the first quarter. It has since rebounded, with growth estimates for the April-June quarter topping a 3.0 per cent annual rate.

A second report on Wednesday showed the NAHB/Wells Fargo Housing Market index rose to 53 this month, the highest level in six months, from 49 in June. A reading above 50 means more builders view market conditions as favorable.

Builders were upbeat about sales over the next six months and optimistic about prospective buyer traffic. That is welcome news for a sector that has been stymied by higher mortgage rates, expensive homes and a dearth of properties for sale.

Another report from the Labor Department hinted at some pick-up of inflation at the factory gate. The department said its producer price index for final demand increased 0.4 per cent last month, reversing May’s 0.2 per cent decline.

The series has been too volatile to offer a clear read on producer inflation since being revamped at the start of the year to include services and construction.