Durable Goods Drive Up Manufacturing in May

By June 16, 2010Economy

The Federal Reserve reported today that manufacturing production increased by a strong 0.8 percent in May, driven by a 1.7 percent rise in durable goods production.  The good news is that the gains in durable goods production were widespread, with 9 of the eleven industries increasing last month.  Two of the fastest-growing industries, wood products and furniture, are likely benefiting from the recent end of the homebuyer tax credit in April, which is expected to have positive impacts on housing-related manufacturing sectors for several more months.

The two industries that declined were aerospace and electrical equipment and appliances.  Because of the large nature of single-ticket orders and shipments in aerospace, this sector tends to jump around from month-to –month more than other sectors.  And production has been very strong in recent months for electrical equipment and appliances,  as consumers took advantage of state-administered federal government programs to purchase energy efficient appliances.  Given that 17 of these state programs have ended as funds have been exhausted, the downturn in electrical equipment and appliance production last month was no surprise. 

Separately, after four consecutive increases, nondurable manufacturing production remained unchanged in May, largely due to declines in chemicals and petroleum products that offset gains in other areas.  While the drop in petroleum production was likely a breather from extremely strong growth during the prior three months, the decline in chemicals could be the first sign of spillover effects from slowing growth in Europe.  One of the  chemical sectors that posted a significant fall in output last month was pharmaceuticals , where exports, two-thirds of which go to Europe,  account for about a quarter of domestic production.  Given the fact that pharmaceutical exports also declined in April, today’s report is another signal that weaker demand in Europe may be starting to have an effect on U.S. manufacturers.

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