Manufacturing Slips in June as Recovery Cools

Industrial production edged up 0.1 percent last month, but manufacturing activity declined amid fears that the economic recovery is stalling.

Output at the nation's mines and utilities rose in June, offsetting the loss of factory output, the Federal Reserve said Thursday. It was the fourth straight monthly increase for overall production. But the uptick was driven by hot weather that spurred demand for electricity.

Factory output — the largest component of industrial production — dropped 0.4 percent. It was pulled down by decreased production of automobiles, building materials and processed food.

Weakness in manufacturing offered the latest evidence that the economic recovery is stalling. The industry helped to spur the early stages of the rebound.

Stocks tumbled after the report was released. The Dow Jones industrial average fell more than 100 points in early trading.

"Today's report supports the view that the manufacturing recovery has lost momentum," said Peter Newland of Barclays Capital Research.

One bright spot in the report showed that business equipment rose in most areas. Production of computers and electronics increased 1.4 percent.

Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said companies went too far in cutting spending during the downturn. He said they would spend enough to boost the overall number in coming months.

"A small decline in manufacturing activity should not be alarming given the exceptionally strong pace of growth to date," Meckstroth said in a written analysis. He expects that industrial production will continue growing, but not as quickly as it did in the first half of the year.

Industrial production has not showed a single monthly decline in the past year. February's result was revised upward in Thursday's report. The Fed now says production was flat that month despite winter storms that shuttered some factories.

Most economists expected the recovery to slow this quarter. But some fear the recovery will falter if unemployment remains near 10 percent.

The economy started growing again last summer, but factories are still operating at well below peak capacity. Factories were operating at 74.1 percent of their maximum output in June, the Fed said. The number was unchanged from the previous month.


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