Industrial Production Rises More Than Forecast

By Alex Kowalski - Nov 16, 2011 9:15 PM GMT+0700

Industrial production in the U.S. advanced more than forecast in October, a signal manufacturing is contributing to fourth-quarter growth.

Output at factories, mines and utilities climbed 0.7 percent after a revised 0.1 percent drop in September, figures from the Federal Reserve showed today. Economists forecast a 0.4 percent gain, according to the median of 83 estimates in a Bloomberg News survey. Factory production, which makes up 75 percent of the total, increased 0.5 percent.

Producers are benefiting from rising sales both abroad and in the U.S., easing fears a global slowdown might curtail American manufacturing. The need to replenish low stockpiles may further stimulate factory output in the event consumer spending continues to pick up into the holiday season.

“Manufacturing is doing fairly well, which we see continuing into next year,” Mekael Teshome, an economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “Exports have been a key component of growth, and inventory restocking and improved consumption are going to have a positive effect as well.”

Production estimates in the Bloomberg survey ranged from increases of 0.1 percent to 0.8 percent. The Fed revised the September reading from a previously estimated 0.2 percent gain, mainly reflecting a reduction in mining output.

Inflation Cools

The cost of living in the U.S. unexpectedly fell in October for the first time in four months, a sign that inflationary pressures may be starting to recede, data from the Labor Department also showed. The consumer-price index declined 0.1 percent from the prior month after a 0.3 percent rise in September. The so-called core rate that excludes volatile food and fuel costs rose 0.1 percent, matching September as the smallest gain this year.

Capacity utilization, which measures the amount of a plant in use, increased to 77.8 percent from a revised 77.3 percent in September that was lower than previously estimated, today’s industrial production report showed. The reading compares with the 79.5 percent average over the past 20 years.

The gain in factory output was the biggest in three months and followed a 0.3 percent advance in September. Manufacturing accounts for about 12 percent of the U.S. economy.

The output of motor vehicles and parts increased 3.1 percent after a 0.4 percent gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing climbed 0.3 percent for a second month.

Mining, Utilities

Mining production, which includes oil drilling, increased 2.3 percent, the biggest gain since January 2010. Utility output decreased 0.1 percent after dropping 2 percent in September.

Production of business equipment increased 1 percent after rising 0.6 percent in September, an indication that investment in computers and communications gear may continue to bolster the expansion. In the third quarter, corporate spending on equipment and software climbed at a 17.4 percent pace, the most in a year, adding 1.2 percentage points to economic growth.

Stronger consumer spending could propel U.S. manufacturing further. Retail sales rose more than projected in October as Americans bought more electronics and demand for automobiles improved, Commerce Department figures showed yesterday. A month earlier, businesses had enough goods on hand to last 1.27 months at the current sales pace, near a record low, which may lead to more factory orders should demand persist.

Lower Dollar

Increased foreign demand for U.S.-made goods has also kept assembly lines running as a cheaper dollar makes American goods more competitive overseas. IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against those of six major trading partners including the euro, yen and pound, has dropped 12 percent from June 7, 2010, through yesterday. Exports rose to a record $180 billion in September, government data showed last week.

“We’re off to a great, great start,” Lee Banks, executive vice president at Parker Hannifin Corp., said during a Nov. 9 investor conference. “I just got back this week from spending time through Eastern Europe and every time you think things are stagnating you get out in the market and you look at the opportunities around the world for people that want to live like we live here, you see nothing but great opportunities.”

Parker Hannifin last month lifted its fiscal 2012 outlook. North American demand will also support the Cleveland-based maker of hydraulic equipment, according to Ann Duignan, an analyst at JPMorgan Chase & Co. Projections for revenue growth in that region next year increased to about 8.3 percent from about 6.2 percent as orders “re-accelerated,” Duignan told Bloomberg News.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net