Ahead of the Federal Reserve meeting on Thursday, the US economy is sending mixed signals. But despite the disappointing factory output data, analysts believe the news isn’t all that bad.
Americans stepped up their spending on cars, restaurant meals, groceries and clothing in August, suggesting strong domestic demand that could persuade a cautious Federal Reserve to hike interest rates on Thursday.
The Commerce Department said on Tuesday retail sales rose 0.2 percent last month, after advancing 0.7 percent in July. Sales have increased 2.2 percent over the past 12 months as solid hiring has translated into surges in spending at auto dealers and dining establishments.
Other data on Tuesday, however, showed auto makers cutting back sharply on production in August after a big gain in July.
Manufacturing dropped 0.5 percent – the biggest decline since January 2014, the Federal Reserve said on Tuesday. The drop in auto output accounted for most of the decline, although production of computers, airplanes and furniture also fell.
Overall industrial production, which includes mining and utilities, dropped 0.4 percent in August, after a 0.9 percent rise in July.
Swings likely temporary
Analysts believe these swings are probably temporary, since they partly reflect difficulties in adjusting the data seasonally. They point out that US carmakers in the past have temporarily closed their plants in July to retool them for new models.
Those shutdowns were much shorter this year, boosting production in July and leading to a corresponding drop in August. Auto sales are strong and on track to top 17 million this year for the first time since 2001.
More confidence?
“Today’s data are positive news for final demand in the third quarter and should give the Fed more confidence in the spending outlook,” said Laura Rosner, an economist at BNP Paribas in New York.
Signs of sustained growth in the economy could encourage the US central bank to raise its benchmark overnight interest rate from near zero. The Fed’s policy-setting committee meets on Wednesday and Thursday against the backdrop of a tightening US labor market, low inflation and softening global demand.
el/hg (Reuters, AP, AFP)
