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U.S. industrial output rises
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June 15, 2000: 11:18 a.m. ET
Production up 0.4% in May; a stronger-than-expected pace
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NEW YORK (CNNfn) - U.S. industrial output rose at a stronger-than-expected pace in May, reflecting robust consumer demand for American-made goods despite rising short-term interest rates. The plant-use rate held steady near a two-year high.
Production at U.S. mines, factories and utilities grew 0.4 percent in May, the Federal Reserve reported Thursday, countering the 0.3 percent drop analysts had expected and April's revised 0.7 percent gain. The amount of industrial capacity in use held steady at 82.1 percent, above the 81.6 percent reading expected by economists.
 That left the plant-use rate at its highest since May 1998, suggesting to analysts and economists that U.S. factories are still running their production lines at a hefty clip to meet continued demand, even in the face of a half-point rate hike by the Fed in the middle of last month.
"It's not really that shocking; we kind of expected it," said Richard Yamarone, a senior economist with Argus Research in New York. "As the economy begins to moderate, we'll get these sporadic spurts of growth -- like an engine running out of gas. We suspect the trend will remain moderation."
The Fed's numbers were the first in several weeks that rang in above Wall Street estimates. They were also the first that countered other pieces of economic evidence that the U.S. economy is slowing down. Most numbers on job creation, factory output, housing, retail sales and inflation at the wholesale and retail level have suggested slowing economic growth.
Not too alarming
Even so, analysts were quick to conclude that manufacturing output often tends to become sporadic when the economy is beginning to slow down -- a reflection of consumers stocking up on items before prices rise and of companies churning out extra goods before scaling back production.
"I don't think it's too alarming but it is going to make people stop and say, 'hey, maybe the Fed isn't finished slowing things down just yet,'" Bill Hornbarger, a bond analyst with A.G. Edwards in St. Louis, told CNNfn.
The Fed last month opted to raise its benchmark fed funds rate by a half-point to 6.5 percent to slow the economy down and keep inflation from accelerating. Fed officials meet next on June 27-28 to discuss the progress of the economy and whether to increase rates again or not.
Output at factories rose 0.3 percent last month, the Fed said, the smallest gain since a similar increase last September. Production of durable goods rose 0.7 percent. Output of non-durable goods fell 0.2 percent last month, while mining output rose 0.3 percent. Output at utilities rose 1.4 percent.
In a separate report, the Fed Bank of Philadelphia said its monthly survey of business conditions plunged to a 19-month low of 1.7 in June, well below consensus forecasts of 13 and May's reading of 20.2. The survey measures business conditions in the mid-Atlantic region of the United States, the nation's third biggest economic district, which includes New Jersey, New York and Pennsylvania. 
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U.S. Federal Reserve
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