Factory output dropped on Japan supply disruptions

AP News
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Posted: May 17, 2011 10:24 AM
Factory output dropped on Japan supply disruptions

U.S. factories in April produced fewer goods for the first time in 10 months. A temporary parts shortage stemming from the Japanese earthquake forced automakers to cut back output.

The Federal Reserve said Tuesday that manufacturing production fell 0.4 percent in April. But excluding the drop in activity at auto plants, factory production rose 0.2 percent last month.

The decline in factory production, the single biggest slice of industrial activity, blunted increases in mining and utilities output. Overall industrial activity was flat in April.

Overall industrial production has risen nearly 11.5 percent since hitting a recession-low in June 2009. But it remains about 7.5 percent below its pre-recession peak in September 2007.

The March 11 earthquake in Japan has shut down factories in that country and led to a shortage of parts, mostly for cars and electronics.

Economists say the supply disruptions will most likely be temporary. They also noted that U.S. companies are likely to be benefit once the Japanese rebuilding effort is under way. That's because U.S. manufacturers are likely to fill orders typically placed with their Japanese counterparts, until those companies are able to resume more normal operations, economists said.

"Eventually, either Japanese production will come back on line or manufacturers will secure parts from other suppliers, possibly even domestically based suppliers," said economist Paul Ashworth at Capital Economics. "We can expect a sharp rebound in motor vehicle production as manufacturers set about rebuilding inventory levels," he added.

Auto production dropped from an annualized rate of nearly 9 million units in March to a rate 7.86 million units in April, the lowest level of the year.

Manufacturing has been a key driver of economic growth since the recession ended nearly two years ago.

A weaker dollar has made U.S. exports cheaper overseas and boosted sales for American companies. Manufacturing activity has also been supported by stronger demand at home. Those factors have prompted U.S. factories to step up hiring.

Factories added 167,000 jobs over the last six months, the biggest hiring spree since 1997. Factory jobs tend to be higher paying and provide better benefits than most jobs in the services sector. For instance, machinists, on average, are paid around $39,000 a year. Salespeople in retail are paid about $25,000 a year.