Bloomberg News

Industrial Production in U.S. Unexpectedly Fell in November

December 15, 2011

Dec. 15 (Bloomberg) -- 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 today. 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, today’s figures underscore Fed policy makers’ comments this week that business investment is beginning to cool.

“Manufacturing is still doing OK,” Robert Dye, chief economist at Comerica Inc. in Dallas, said before the report. “There are obviously concerns about weaker global situation, and I think that manufacturers are feeling justifiably cautious. The European situation and China are potential game-changers here if their economies turn south quickly.”

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

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.

Today’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.

Auto Production

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.

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

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.

Today’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 chief executive officer 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.”

Empire State

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.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Christopher Wellisz

Company News: ACAT US <Equity> CN

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


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