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Fed Says Computer Production Jumps


With production humming at computer manufacturers, the IT economy looks strong. But economists caution that the strong performance of the recent past won't continue, at least at the levels, for the IT sector. "Growth has been rapid, but should moderate," says Scott Brown, chief economist at brokerage Raymond James & Associates. "But we don't think it will be falling off a cliff."

The Federal Reserve said Thursday that said computer production in June rose 3% from May and was up 30.7% from a year earlier. As a comparison, overall industrial production fell 0.3% in June, though it's up 5.6% overall for the year. In addition, computer vendors' factories in June operated at 79.6% capacity, up 1 percentage point from May, and the highest level in years. The capacity utilization rate for all industries fell in June by four-tenths of a percentage point to 77.2%.

Economist Lakshman Achuthan, managing director of the Economic Cycle Research Institute, says production should moderate, though businesses managers will continue to increase spending--albeit at a slower pace--because they're confident the economy won't fall apart. "Should we run for the hills, is the sky falling," Achuthan asks. "No. There's no new recession or contraction in sight. Economic growth is slowing from 5% earlier this year to about 3%. When you have that kind of deceleration, it's likely to ease inflation concerns." That puts less pressure on the Fed to quickly raise interest rates.

Achuthan also sees the strong increase in capacity-utilization rates easing, not only because tech buyers might slowdown their purchases but also because it reflects American manufacturing, and more computer wares are produced abroad today than in the past.