Industrial production in U.S. unexpectedly fell in November

Posted 12/16/11

WASHINGTON - U.S. industrial production unexpectedly dropped in November for the first time in seven months, an indication of a pause in manufacturing as 2011 comes to a close.

Output at factories, mines and utilities declined 0.2 percent after a 0.7 percent gain in October, figures from the Federal Reserve showed Thursday. Economists forecast a 0.1 percent advance, according to the median estimate in a Bloomberg News survey. Factory production, which makes up 75 percent of the total, decreased 0.4 percent, also the first decline since April.

A slowing economy in Europe may limit shipments from American manufacturers and restrain the industry that’s been a source of strength for the recovery. While lean inventories point to sustained production, Thursday's figures underscore Fed policy makers’ comments this week that business investment is beginning to cool.

“Manufacturing still appears to be growing, albeit slightly less than it was in the third quarter,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Conn. “Part of the weakness reflected a cut in motor vehicles and parts.”

Estimates of the 82 economists surveyed by Bloomberg ranged from a decrease of 0.5 percent to an increase of 0.5 percent.

Stocks climbed after a report showed jobless claims declined to a three-year low. The Standard & Poor’s 500 Index rose 1 percent to 1,224.07 at 9:51 a.m. in New York.

The Labor Department said the number of applications for unemployment benefits dropped by 19,000 to 366,000 in the week ended Dec. 10.

Capacity Utilization

Capacity utilization, which measures the amount of a plant in use, fell to 77.8 percent from a revised 78 percent in October that was higher than previously estimated. The reading compares with the 79.5 percent average over the past 20 years.

Thursday's industrial production report showed factory output decreased after increasing 0.5 percent in October. Manufacturing accounts for about 12 percent of the U.S. economy.

The output of motor vehicles and parts declined 3.4 percent, erasing the prior month’s entire gain, today’s report showed. Manufacturing excluding autos and parts dropped 0.2 percent following a 0.3 percent October rise.

Flooding in Thailand

Production, including auto manufacturing and computer equipment, may have been hindered by flooding in Thailand that has killed almost 700 people and swamped the nation’s industrial facilities. Intel Corp., the world’s largest chipmaker, reduced its fourth-quarter revenue forecast by about $1 billion, saying a shortage of hard-disk drives is cutting customers’ production of personal computers.

Mining, which includes oil drilling, increased 0.1 percent. In October, production at mines surged 2.1 percent.

Utility output climbed 0.2 percent, the first gain in four months, after a 0.3 percent decrease. The average temperature in November was 44.3 degrees Fahrenheit (6.8 degrees Celsius) last month, 1.4 degrees above that month’s average from 1901-2000, according to the National Climatic Data Center.

Production of business equipment decreased 0.1 percent after rising 1.4 percent the prior month, restrained by less output of motor vehicles for businesses. Production of aircraft and railroad equipment increased.

ISM Manufacturing

Thursday's figures are at odds with the Institute for Supply Management’s national index of manufacturing, which rose last month. The barometer’s measures of production and new orders climbed at the fastest rate since April.

“It’s been a great year, it goes almost against logic in terms of what you read in the papers with the economy,” Claude Jordan, president and CEO of Arctic Cat Inc., which makes all-terrain recreational vehicles, said during a Dec. 6 investor conference. Jordan said he was “feeling good about where we stand today, a lot of that’s due to lower dealer inventories, pent-up demand.”

A regional report today showed manufacturing regained some momentum this month. The Federal Reserve Bank of New York’s general economic index climbed to 9.5, the highest level in seven months, from 0.6 in November. Readings greater than zero show companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are boosting output.

A separate central bank report today may show manufacturing across eastern Pennsylvania, southern New Jersey and Delaware expanded as well. The Federal Reserve Bank of Philadelphia’s general economic index increased to 5 in December from 3.6 last month, economists forecast ahead of the 10 a.m. release.

The industry is not without risks. In addition to the European debt crisis, Fed officials after this week’s policy meeting said “business fixed investment appears to be increasing less rapidly.”

The central bank reaffirmed that “the economy has been expanding moderately,” according to the Federal Open Market Committee’s statement on Dec. 13.

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