- The Washington Times - Wednesday, September 16, 2009


American factories, utilities and mines increased their output in August, while inflationary pressures remained subdued, as the U.S. economy showed further signs that it was recovering from the longest, deepest recession in seven decades.

Industrial production increased for the second month in a row in August. It was the first time since the end of 2007, when the recession began, that industrial output has expanded two months in a row.

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Industrial production, which includes output by the nation’s factories, mines and utilities, jumped 0.8 percent in August after surging an upwardly revised 1 percent in July, the Federal Reserve reported Wednesday.

Manufacturing output, which was driven by a 5.5 percent increase in the production of motor vehicles and auto parts, rose 0.6 percent in August after increasing 1.4 percent in July. The “cash for clunkers” program helped to drive manufacturing output, but factory production unrelated to autos increased as well.

“The trough of the recession remains in June — that is the low point for manufacturing output — but today’s report underscores that the long climb out of the hole is under way,” said Nigel Gault, chief U.S. economist for IHS Global Insight.

Industrial production and manufacturing output in August were 13.3 percent and 15.3 percent, respectively, below their December 2008 peaks, according to Fed data.

The Fed’s report also showed that firms have increased the use of their production capacity from a record low of 68.3 percent in June to 69.6 percent in August. Between 1972 and 2008, capacity use averaged about 81 percent, revealing that considerable production slack remains.

As output rises, inflationary pressures remain weak, analysts said.

Fueled by a 9 percent rise in gasoline prices, consumer prices increased 0.4 percent in August, the Labor Department reported Wednesday. However, over the past 12 months, consumer prices have declined 1.5 percent as energy prices, despite their recent uptick, remained well below year-earlier levels.

The so-called core consumer price index, which excludes the volatile food and energy sectors, increased just 0.1 percent last month. Over the past 12 months, the core index has risen 1.4 percent.

The news on the inflation front underscored the view of the Federal Reserve that inflationary pressures are contained for now. After its last meeting, the Fed’s policy committee repeated its intention to keep short-term interest rates at their historically low level for an “extended period.”

Since December 2008, the Fed’s benchmark overnight interest rate has remained between 0 percent and 0.25 percent. The Fed’s policy committee will convene next week.

Fed Chairman Ben S. Bernanke said Tuesday at the Brookings Institution that the U.S. recession “is very likely over,” but the recovery, he warned, is not expected to be robust. “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Mr. Bernanke said.

Most economists project that the U.S. unemployment rate, which reached a 26-year high of 9.7 percent last month, will continue rising and soon will exceed 10 percent. The jobless rate is likely to remain elevated throughout 2010, according to most economic forecasts.

“Since the recession has been especially deep and slack is unusually large, the case for low inflation and low [short-term interest] rates in 2010 is a strong one,” said Aaron Smith, an economic analyst at Moody’s Economy.com.

The deep recession significantly reduced the record-level imbalance in U.S. international transactions as U.S. imports plunged much more steeply than its exports. In the second quarter, the deficit on the current account, which is the broadest measure of U.S. international economic activity, fell to $98.8 billion, its lowest level since the fourth quarter of 2001, the Commerce Department reported. In 2006, quarterly deficits exceeded $200 billion in the current account, which includes trade in goods and services, investment income and current unilateral transfers (for example, payments from U.S. immigrants to their families abroad).

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