Factory Production Rises by Most in Three Months

Tuesday, 16 Nov 2010 09:29 AM

 

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Factory production in the U.S. increased in October by the most in three months, signaling industries continue to support the U.S. economic recovery.

Manufacturing rose 0.5 percent after a 0.1 percent increase in September that was previously reported as a 0.2 percent drop, figures from the Federal Reserve showed today. Total production was little changed, restrained by the biggest drop in utility use in six months that was probably caused by unseasonably mild temperatures last month.

Gains in exports and business investment may keep assembly lines churning, just as the initial spark from the need to rebuild inventories wanes. The increases in global demand that benefitted companies like General Electric Co. and helped lift the economy gave American consumers time to repair finances and resume spending, leading to a more balanced recovery.

“Manufacturing output should be strengthening into the end of the year,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. What’s supporting growth is “a little bit better domestic demand and fantastic growth overseas.”

Economists surveyed by Bloomberg News projected total industrial production would increase 0.3 percent after a 0.2 percent decline for September, according to the median of 78 forecasts. Estimates ranged from no change to a gain of 0.7 percent.

Wholesale Costs

Another report today showed wholesale costs rose 0.4 percent in October from the prior month, less than forecast, reflecting declines in prices of cars, trucks and computers that shows limited demand is keeping a lid on inflation, according to figures from the Labor Department.

Stock-index futures held earlier losses after the reports on concern China may take steps to curb inflation and slow global growth. The contract on the Standard & Poor’s 500 Index maturing in December fell 0.5 percent to 1,189.3 at 9:19 a.m. in New York.

Capacity utilization, which measures the amount of a plant that is in use, was unchanged at 74.8 percent last month, the production report showed. The gauge averaged 80 percent over the past 20 years, showing there’s enough spare plant equipment and space to prevent bottlenecks that would lead prices higher.

The gain in factory output was led by makers of autos, computers and communications gear.

Utility Use

Utility production dropped 3.4 percent after a 2.2 percent decrease the prior month. Temperatures for the month averaged 56.9 degrees, making it the eleventh-warmest October on record, according to the National Oceanic and Atmospheric Administration.

Mining, which includes oil drilling, fell 0.1 percent.

Carmakers increased output by 1.6 percent last month after little change in September.

Auto sales in October reached a 12.3 million annual pace, the highest in more than year, according to researcher Autodata Corp. Ford Motor Co. said its sales rose 15 percent in October and demand for its F-Series pickups increased 24 percent, pushing deliveries past last year’s total in the first 10 months of 2010.

“That’s a good harbinger of the economy starting to move forward,” Ken Czubay, Ford’s U.S. sales chief, said on a conference call with analysts. “It’s good to see the industry nudging forward.”

November Retreat

The first of this month’s regional factory reports raised the risk that the rebound will prove to be short-lived. Manufacturing in the region covered by the Fed Bank of New York unexpectedly contracted in November for the first time in more than a year, the branch of the central bank said yesterday.

Some Fed policy makers are concerned economic growth is not strong enough to reduce an unemployment rate close to 10 percent. At the same time, inflation remains below the Fed’s longer-term projections. The central bank this month announced a program to buy an additional $600 billion in Treasury securities in a bid to keep borrowing costs low and spur growth.

Foreign sales remain a bright spot. Exports in September rose to the highest level in two years, according to Commerce Department data released Nov. 10.

General Electric Chief Executive Officer Jeffrey Immelt last week appointed Vice Chairman John Rice to accelerate a push to bolster exports and expand partnerships in countries like China and India that are modernizing infrastructure to foster faster economic growth.

Emerging Markets

“The growth in the next decade or decades that’s going to take place will be quite robust in places like China and India,” Immelt said Nov. 9 in Beijing. GE is based in Fairfield, Connecticut.

Some businesses are also responding to increased exports and to a pickup in U.S. demand by replacing aging equipment and bringing more parts of their plants online.

Rockwell Automation Inc., the maker of factory software, said it sees interest rising in large-scale plant projects for full-production lines in developed markets, a sign that those economies may be picking up steam.

“These are projects that are significant expansion in production capacity or new lines,” Chief Executive Officer Keith Nosbusch said in an interview last week. “These would be larger capital spending investments,” which means those markets have a more positive outlook on their future.

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