Industrial output motors higher in key US state

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Barack Obama's "cash for clunkers" car scrappage scheme appears to be behind a dramatic recovery in industrial output in the New York area.

Optimism was also evident in the beleaguered real-estate market. Home-builders were more confident in August than at any time in the past year, though most still believe that the market is poor, according to the housing market index from the National Association of Home Builders and Wells Fargo. It is now at its highest since June 2008.

The New York Federal Reserve's Empire State Manufacturing Survey for August registered a reading of 12.1, ahead of expectations. A reading of above zero indicates an expansion in output. This month's increase of 13 points takes the index to its highest since November 2007. The New York Fed said the reading was "a clear indication that, on balance, business conditions had improved for New York State manufacturers".

Demand for car components seems to have been a key driver of the turnaround. Economists also felt that the figure indicated an end of the savage "inventory recession" that has depressed manufacturing throughout the world. As destocking slows and retailers and manufacturers begin to build up stocks of finished and semi-finished products, industrial output should bounce back, if only for these technical reasons.

The New York Fed's report showed that orders and shipments increased while inventories and employment contracted, but at a slower pace than recently. Though signals from the US economy have been mixed in recent days, this latest news does add to hopes that America will follow France, Germany and Japan out of recession in the third quarter of this year.

Julia Coronado, an economist at BNP Paribas, said: "The Empire manufacturing index confirms that a pick-up in production is ongoing in the third quarter."

However, even the relatively upbeat news was not sufficient to lift Wall Street, with the major indices slipping by about 2 per cent.

The New York Fed said that in the current survey, the cost of employee benefits was the issue most frequently identified as a major problem for companies.