Industrial production rose a strong 0.8 percent in July, the sixth consecutive monthly increase and the largest in more than a year, the Federal Reserve reported yesterday.
The increase in the production index, which covers output of the nation's factories, mines and utilities, was double the 0.4 percent rise in June. Every major part of the index -- consumer goods, business equipment, materials and construction supplies -- rose substantially, the Fed report said.
The increase was stronger than most analysts had expected and was seen as further evidence that goods-producing industries, previously hard hit by foreign competition, are steadily gaining ground.
Some of the production increase followed a very large 1.8 percent increase in business sales in June, following a more modest 0.4 percent rise in May. The Commerce Department, in a separate report, said June sales of manufacturers, wholesalers and retailers reached $453.1 billion. Inventories increased 0.4 percent to $674.2 billion.
Meanwhile, the Labor Department said producer prices for finished goods rose 0.2 percent last month, the same as in June, as declining prices for consumer foods offset continuing substantial increases in energy prices.
The figures in all three of these reports were adjusted for seasonal variations.
Beryl Sprinkel, chairman of the Council of Economic Advisers, expressed pleasure with the price report. "After a temporary increase early this year, inflation is returning to the 4 percent range characteristic of the first three years of the current expansion," he said.
Some other analysts were not so sure. Some, such as economist Lawrence Kudlow of Bear, Stearns & Co., expect inflation to reach the 6 percent level before the year is out. Others think it will stay above 4 percent and reach at least 5 percent rates early next year.
Even though the June and July increases in finished goods prices were only a little more than half as large as the average monthly rise in the first half of the year, some analysts expressed concern about rapid advances in many industrial materials prices. Those advances, which included a 4.7 percent increase in prices of primary nonferrous metals such as copper and lead, are another sign of increasing strength of demand for industrial materials as sales and industrial production rises.
Producer prices for intermediate materials other than foods and feeds went up 0.8 percent in July following a 0.6 percent increase in June.
Prices of crude materials other than foodstuffs and feedstuffs jumped 2.4 percent after increases of 1.6 percent in June and 2.3 percent in May. Excluding energy, food and feeds, the crude materials index went up 4.2 percent in June and another 2.9 percent in July.
Increases in prices of intermediate and crude materials tend to push up finished goods prices in the future. However, such a pass-through is damped substantially if other production costs, such as wages, are not rising as fast.
The Labor Department reported last week that its hourly earnings index rose 0.2 percent in July and was up only 2.4 percent in the past 12 months.
While producer prices for finished goods rose 0.2 percent last month, consumer food prices fell 0.6 percent.
Prices of finished consumer goods other than food rose 0.6 percent, largely on the strength of a 1.5 percent jump in finished energy goods, the department said.
Gasoline prices went up 2.5 percent and home heating oil 4.6 percent last month. In the past 12 months, they have gone up 31 percent and 56.6 percent, respectively.
The other broad category of finished goods, capital equipment, continued to show very moderate price gains. Last month, prices rose 0.1 percent after being unchanged in June. Over the past year, capital goods prices were up 1.9 percent.
According to the Federal Reserve report on industrial production, the strong gain for July came despite a drop in automobile assemblies from an annual rate of 6.9 million units to 6.7 million. That drop was more than offset by a surge in production of light trucks, which many buyers use instead of a car. However, because of high inventories, particularly at General Motors, car production cuts have been scheduled for coming months, which could help hold down industrial production gains later this year, analysts said.
One bright spot for manufacturing -- production of defense and space equipment -- is dimming. Output of such goods rose only 0.2 percent in July after a decline of 0.3 percent in June. Exactly the same pattern occurred in April and May. This changed picture is the result of a flattening in new orders for defense goods in the wake of several years of smaller annual increases in defense budgets, and it is expected to continue.
Mining output rose 1.1 percent in July after going up 0.9 percent in June. After a sharp decline following the slump in oil prices early last year, oil and gas production has begun to climb again, rising 2.7 percent since January.