Industrial production jumped in November by the most in two years as U.S. manufacturers began to rebound from the damage inflicted by superstorm Sandy.
Output at factories, mines and utilities increased 1.1 percent last month, the most since December 2010, after a 0.7 percent drop in October that was larger than previously estimated, the Federal Reserve reported today in Washington. Other data showed consumer prices fell last month as fuel costs retreated.
Manufacturing, which stumbled in the second half of the year, is stabilizing as housing recovers, auto sales improve and growth in countries such as China shows signs of picking up. The deadlock over the federal budget remains a hurdle for American factories as a failure to avert tax increases and spending cuts is projected to trigger a recession in world’s largest economy.
“The outlook for the back half of 2013 is actually not that bad,” as long as lawmakers reach a budget deal, said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, one of the top industrial-production forecasters over the past two years according to Bloomberg Rankings. “We do have decent job gains, decent income gains, consumer spending is holding up and housing is turning around. You could easily see a constructive profile for the economy.”
Stocks fell, extending yesterday’s drop, as a slump in Apple Inc. and budget-talk concerns overshadowed the rise in industrial production and data showing China’s manufacturing may expand at a faster pace. The Standard & Poor’s 500 Index decreased 0.4 percent to 1,413.58 at the close in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 1.70 percent from 1.73 percent late yesterday.
China’s manufacturing is expanding at a growing pace in December, suggesting the factory recovery in the world’s second- biggest economy may withstand a slowdown in exports, according to a report today. A preliminary purchasing managers’ index issued by HSBC Holdings Plc and Markit Economics climbed to 50.9 from 50.5 for November, the first time in 13 months it was above the expansion-contraction dividing line of 50.
The Markit Economics preliminary index of U.S. factories increased to 54.2 in December from a final reading of 52.8 a month earlier, the London-based group also said today.
Other figures today showed euro-area services and manufacturing output contracted at a slower pace in December than economists forecast.
The median forecast in a Bloomberg survey of 81 economists projected a 0.3 percent advance in industrial production. Projections ranged from a decline of 0.8 percent to an advance of 1 percent. October’s output figure was previously reported as a 0.4 percent drop.
Manufacturing, about 75 percent of production, surged 1.1 percent in November, the most this year.
The advance in November production “is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy,” the Fed said in a statement.
The report also showed motor-vehicle production increased 4.5 percent in November, the most since January, following no change the prior month. Cars and light trucks sold at a 15.5 million annual rate in November, the most since February 2008, boosted in part by buyers replacing cars damaged by the storm, according to data from Ward’s Automotive Group.
Factory output excluding production of vehicles and parts rose 0.8 percent. Production of business equipment increased 1.2 percent after a 1.3 percent decrease in October.
“I don’t know if it’s the first quarter, but I do feel more confident about 2013 giving us an opportunity to see a return to normalcy,” Paul Reilly, chief financial officer of Arrow Electronics Inc. (ARW:US), said during a Dec. 11 conference. By that point, the change in political leadership in China and the slump in Europe may be “behind us,” he said. Arrow, based in Englewood, Colorado, distributes electronic components and computer products to industrial customers.
Consumers in the U.S. are now also getting a boost from falling fuel prices. The cost of living fell 0.3 percent in December, the first drop since May, the Labor Department reported today. The core consumer-price index, which excludes volatile food and energy costs, climbed 0.1 percent, less than the 0.2 percent increase that was the median forecast of economists surveyed by Bloomberg.
Facing little threat of inflation, Fed policy makers this week expanded asset purchases in a continuing bid to reduce unemployment and spur growth. Department stores including the Gap Inc. (GPS:US), Macy’s Inc. (M:US) and J.C. Penney Co. are offering sales in the midst of the holiday shopping season as consumer confidence ebbs ahead of the possible changes in tax rates and government spending.
“Inflation remains tame,” said Gus Faucher, senior economist at PNC Bank in Pittsburgh, who correctly forecast the decline in prices. “It’s difficult for firms to raise prices in the current environment.”
Today’s manufacturing data follows other reports pointing to stabilization. Manufacturers projected they will invest more next year than this year, according to results of the Institute for Supply Management’s semiannual survey issued this week. A proxy for business spending, orders for capital equipment excluding defense and aircraft rose 2.9 percent in October, the biggest increase since February, Commerce Department data show.
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