Industrial production in U.S. increases by most since May 2010

WASHINGTON – Industrial production surged in November by the most since May 2010 as U.S. assembly lines churned out more consumer goods and business equipment, signaling manufacturing is bolstering economic growth.

The 1.3 percent gain in output at factories, mines and utilities followed a 0.1 percent increase the prior month that was previously reported as a decline, figures from the Federal Reserve showed today in Washington. Manufacturing rose 1.1 percent, the most in nine months, and output at utilities was the strongest in almost eight years.

The Fed’s report showed the biggest gain in consumer-goods production in 16 years, indicating rising auto sales and a pickup in retail purchases are helping factories work through a slowdown in global markets. More hiring, slumping gasoline prices and a jump in confidence add to signs of improving household demand and sustained production growth.

“November was a strong month for manufacturing and we should see that continue,” said Laura Rosner, a U.S. economist at BNP Paribas in New York and a former New York Fed researcher who predicted a 1.2 percent gain in industrial output. “With consumer demand and business demand strengthening together, it is self-reinforcing. The gain in production sets us up for a solid pace of growth next year.”

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The median forecast in a Bloomberg survey of 81 economists called for a 0.7 percent rise. Estimates ranged from gains of 0.2 percent to 1.3 percent after a previously reported 0.1 percent decrease in October.

The Bloomberg survey median also projected a 0.5 percent gain for output at manufacturers, who which account for about 12 percent of the economy.

Capacity utilization

Capacity utilization, which measures the amount of a plant that is in use, rose to 80.1 percent, the highest since March 2008, from 79.3 percent the prior month.

Utility output jumped 5.1 percent, the most since February 2007, after a 0.7 percent drop the previous month. Mining production, which includes oil drilling, decreased 0.1 percent.

Production of consumer goods advanced 2.5 percent in November, the largest gain since August 1998, led by cars, electronics and energy.

The output of motor vehicles and parts increased 5.1 percent, the first gain since July, today’s report showed. Excluding autos and parts, factory production rose 0.9 percent after rising 0.5 percent in the prior two months.

Industry data show robust demand for vehicles. Sales of cars and light trucks rose to a 17.1 million annualized rate in November from a 16.4 million pace a month earlier, according to figures from Ward’s Automotive Group. Toyota Motor Corp. and General Motors Co. were among those reporting bigger gains than projected.

Business equipment

Machinery production rose 1 percent and construction materials output increased 0.5 percent in November, today’s report showed. Business equipment production advanced 1.2 percent.

Recent reports indicate manufacturing gains are being sustained. The Institute for Supply Management’s factory index in November was at the second-strongest level since April 2011. Orders over the past four months have been the strongest in a decade, the Tempe, Arizona-based group’s data showed on Dec. 1.

Stronger domestic demand is underpinning factories. Retail sales rose 0.7 percent in November, the most in eight months, as consumers snapped up electronics, clothing and furniture, according to Commerce Department figures last week.

Overseas economies

The industry still faces some hurdles. The outlook for other big economies has worsened. Economists surveyed by Bloomberg expect China to grow 7.4 percent this year, the weakest since 1990, as the country’s real estate and construction boom falters. In Japan, government figures showed the economy contracted 1.9 percent in the third quarter.

Deere & Co., the world’s largest farm-equipment maker, in November forecast lower-than-expected earnings for fiscal 2015 as a slump in crop prices means farmers are buying fewer of its most profitable machines.

At the same time, Deere’s construction segment is doing better as the U.S. economy improves. Sales of smaller equipment to livestock farmers, who are benefiting from lower feed costs and higher meat prices, are also helping it offset some of the decline in large farm-machinery sales, the Moline, Ill.- based company said.

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