On Wednesday, news broke that industrial output rose for a seventh straight month and home construction hit a six-month peak in January. The news has sparked hope that the economy can sustain its recovery. The Federal Reserve report showed gains in manufacturing, mining and utilities, the first collective show of strength since August. Manufacturing output rose 1 percent, led by a nearly 5 percent gain in auto production.
A separate sign of strength came in a Commerce Department report on housing construction: home building posted a better-than-expected increase last month. Construction rose 2.8 percent to a seasonally adjusted annual rate of 591,000 units, better than the 580,000 annual pace economists originally forecasted. Still, applications for building permits fell 4.9 percent to a rate of 621,000, following two months of sharp increases.
Last month’s gains in home construction indicate that the industry is starting to sustain its recovery from its worst slump in decades. Analysts noted that most of the strength came from a jump in the volatile sector of apartment buildings, but the much larger single-family category rose only slightly.
Also reported on Wednesday, Federal Reserve policymakers forecast that unemployment will remain high over the next two years. Officials said it will take “some time” for the economy and the job market to return to normal. The report is better than the original view that it could take five or six years for economic conditions to return to full health. In its updated projections, officials said the jobless rate this year could hover between 9.5 percent and 9.7 percent, falling to 8.2 percent to 8.5 percent in 2010.
Meanwhile, U.S. manufacturers are benefiting “across the board” as companies rebuild inventories, creating especially robust demand for metals, chemicals and paper, said Thomas Duesterberg of the Manufacturers Alliance/MAPI, an industry group.
Yet, Paul Ashworth, a Capital Economics economist, wrote that, “Activity in other sectors of the economy, such as housing and services, is still relatively weak. The problem is that the factory sector is now such a small part of the overall economy that the wider impact will be modest.”