May 14, 2010 at 12:58 PM CDT - Updated June 15 at 8:00 PM
By JEANNINE AVERSA AP Economics Writer
WASHINGTON (AP) - Industrial production logged a stronger-than-expected gain in April, more evidence that manufacturing is playing a lead role in powering the economic recovery.
The 0.8 percent increase in output at the nation's factories, mines and utilities reported by the Federal Reserve on Friday marked an improvement from the 0.2 percent rise registered in March. It marked the best showing since a 1.2 percent jump in January. The performance of the industrial sector in April was even stronger than the 0.6 percent gain that economists were predicting.
Factories - the single biggest slice of industrial activity - ratcheted up production by a brisk 1 percent for the second straight month, the Fed reported.
Manufacturers are boosting production because companies are starting to restock depleted inventories. Both consumers and businesses are showing a greater appetite to spend now that the economy is healing. During the recession, companies slashed inventories at a record pace as Americans and foreign customers pulled back.
A wide swath of manufacturers reported increasing production in April.
Those boosting production included makers of primary metals, fabricated metal products, machinery, electrical equipment, appliances, furniture and carpeting, plastics and rubber products, petroleum and coal products and paper products. Production of business equipment also posted gains. However, production of autos and parts declined in April. So did aerospace products, other transportation equipment and home electronics.
Stronger manufacturing activity has prompted factories to step up hiring.
Manufacturers added 44,000 jobs in April, the most since 1998, the government reported last week. Businesses that produce fabricated metal products, machinery, electrical equipment and appliances, plastics, food, and paper products all posted job gains.
All told, employers added 290,000 jobs last month, the most in four years.
More companies - including Ford, Caterpillar and Whirlpool - are seeing profits grow. General Electric says the "clouds are breaking" after having suffered one of its worst years in 2009.
Friday's report also showed that production at mines rose 1.4 percent for the second month in a row. Output at gas and electric utilities dropped by 1.3 percent in April as warmer spring weather lessened demand.
Overall, the improved industrial activity is lifting the operating rate at factories, mines and utilities, the Fed said Industrial companies' operating rate rose to 73.7 percent in April, matching economists' predictions. That was up from 73.1 percent in March.
During the recession, so-called capacity utilization rates fell to the lowest readings on records dating to 1948. Even with the pick up, factories and other industrial companies are operating well below full throttle. Economists refer to this as "slack" in the economy.
That slack, along with a fragile jobs market, is likely to keep a lid on inflation, the Federal Reserve says.
Companies aren't likely to jack up prices any time soon. Even though shoppers are spending more, they aren't doing so with the kind of abandon typically seen in the early stages of economic recoveries. And workers aren't likely to get hefty pay increases from employers given prospects for a moderate, rather than booming, recovery.
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