Industrial production edges up, weekly job claims higher

WASHINGTON -- Manufacturers shifted into a lower gear in July and more Americans filed new applications for jobless benefits last week as companies and workers felt the strain of the struggling economic recovery.

Factory production nudged up by only 0.1 percent in July, compared with the solid 0.6 percent increase from the previous month, the Federal Reserve reported Thursday.

For the entire industrial sector -- which includes factories, mines and utilities -- output rose by 0.2 percent in July, compared with June's 0.7 percent increase.

The Labor Department reported that new claims for unemployment insurance rose last week by a seasonally adjusted 6,000 to 388,000, a level associated with a sluggish job market.

The reports "suggest that the economic train is still moving, but on the slower freight track," said Tim O'Neill, chief economist at the Bank of Montreal.

He and other analysts believe the recovery is hitting a temporary rough patch related to the accounting scandals that have shaken Americans' confidence in companies, the roller-coaster stock market and a stagnant jobs market. These economists do not foresee a return to recession.

Faced with economic uncertainties, companies have been reluctant to hire back laid-off workers and make big capital spending commitments, keys to reviving the economy.

"While America's industrial base struggled in July, the primary cause was excessive pessimism from accounting scandals and stock market volatility," said Jerry Jasinowski, president of the National Association of Manufacturers.

"Neither today's numbers nor the current economic environment justify swapping a period of irrational exuberance for one of irrational pessimism," he said.

The Federal Reserve on Tuesday kept short-term interest rates steady, but opened the door to future reductions. The Fed said stock market turmoil and the business scandals have been a drag on the economy.

Keeping rates low -- or perhaps nudging them down -- might motivate consumers to spend more and businesses to step up investment.

The economy lost momentum in the spring, growing at a rate of just 1.1 percent, down from a 5 percent pace in the first quarter.

In the industrial production report, the small rise in factory production largely reflected a 4.2 percent increase in output of cars, trucks and parts. Excluding them, factory output would have fallen by 0.3 percent in July, the Fed said.

At mines, production fell by 1.2 percent in July, while output at gas and electric utilities rose 2.3 percent as hot weather pushed up demand.

Even though production slowed for the entire industrial sector in July, the 0.2 percent increase was the seventh straight month that output rose. That is better than the long string of monthly declines in production the industry endured during the economic slump.

In the jobless report, unemployed Americans continuing to draw jobless benefits rose to 3.58 million for the work week ending Aug. 3, the most recent period for which the information is available. That high level suggests that not a lot of hiring is going on.

The nation's unemployment rate is stuck at 5.9 percent as companies added a paltry 6,000 jobs to their payrolls in July.

Consumers, the economy's driving force, so far have not reined in their spending, helped by low interest rates, rising incomes and increasing home values.

Freddie Mac, the mortgage company, reported Thursday that rates on 30-year fixed-rate mortgages dipped to a new low this week -- 6.22 percent. That's the lowest level in 32 years of record keeping and surpassed the previous low of 6.31 percent set last week.

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On the Net

Federal Reserve: http://www.federalreserve.gov

Jobless report: http://www.doleta.gov/