Bloomberg News
Factory production in the U.S. rose more than forecast in October, indicating the partial government shutdown did little to halt the pickup in manufacturing at the start of the fourth quarter.
The 0.3 percent advance at factories followed a 0.1 percent gain the prior month and exceeded the 0.2 percent median projection in a Bloomberg survey, figures from the Federal Reserve showed today in Washington. Total industrial production fell 0.1 percent as output at mines and utilities declined.
The report indicates businesses were increasing orders and output even in the face of the 16-day federal government closing in October. The housing rebound and demand for vehicles, the mainstays of manufacturing, will help to sustain economic growth that's forecast to cool in the wake of last month's fiscal gridlock.
'Manufacturing will keep expanding,' Jim O'Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said before the report. O'Sullivan is the top industrial production forecaster in the past two years, according to data compiled by Bloomberg. 'Demand should be pretty solid. The overall economy has been held back by the fiscal drag but as that fades, we should see an improvement.'
The median forecast in a Bloomberg survey of economists called for a 0.2 percent rise in total industrial production. September output was revised up to a 0.7 percent gain from a previously reported 0.6 percent advance. Estimates of the 84 economists surveyed by Bloomberg ranged from a drop of 0.2 percent to an increase of 0.5 percent.
Stock Futures
Stock-index futures held gains after the report, with the contract on the Standard & Poor's 500 Index expiring in December climbing 0.2 percent to 1,791.6 at 9:24 a.m. in New York.
Another report today showed a gauge of manufacturing the New York region unexpectedly declined this month. The Federal Reserve Bank of New York's general economic index fell to minus 2.2 in November from 1.5 the prior month. Readings less than zero signal contraction in New York, New Jersey and southern Connecticut.
The gain in manufacturing, which accounts for about 12 percent of the economy and 75 percent of total industrial production, reflected increased output of furniture, computers and metals.
Today's Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, fell to 78.1 percent from 78.3 percent the prior month.
Mining, Utilities
Utility output dropped 1.1 percent after a 4.5 percent surge the previous month. Mining production, which includes oil drilling, decreased 1.6 percent, the biggest drop since February 2011. The decline reflects the temporary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of Tropical Storm Karen.
The output of motor vehicles and parts decreased 1.3 percent, the first decline in three months, today's report showed. Excluding autos and parts, manufacturing production climbed 0.4 percent after no change the previous month.
'There's a lot of volatility in these numbers and auto production can be very lumpy,' O'Sullivan said.
Other recent reports signal a pickup in manufacturing. The Institute for Supply Management's factory index climbed in October to 56.4, the highest since April 2011, from 56.2 a month earlier, the Tempe, Arizona-based group's reported on Nov. 1. Readings above 50 indicate growth.
Third Quarter
The economy expanded at a 2.8 percent annualized pace in the third quarter, after a 2.5 percent rate in the prior three months, according to Commerce Department data released Nov. 7. While the biggest gain in inventories since the beginning of 2012 provided a boost, the buildup of stockpiles risks limiting growth this quarter as companies restrain production.
Motor vehicle sales have been a bright spot in this expansion as Americans take advantage of cheaper borrowing costs to replace older models. Cars and light trucks sold at a 15.2 million (SAARTOTL) annual rate in October, matching the September pace, according to Ward's Automotive Group data.
'Economic conditions continue to improve at a modest pace,' Emily Kolinski Morris, senior economist at , said on a Nov. 1 call with analysts. 'Manufacturing sector growth continues at a steady pace' and housing data signals there is 'a broad-based recovery still in place.'
Cisco Systems
Some companies are faring worse. Cisco Systems Inc., the world's largest maker of computer-networking equipment is facing slower spending by phone companies and large corporations, as well as economic weakness in Europe, Asia and emerging economies.
'The shutdown, debt ceiling negotiations, and delay of key decisions exacerbated the lack of confidence among business leaders we had highlighted over the past few quarters,' John Chambers, chief executive officer, said on a Nov. 13 conference call. He said the impact of the shutdown on the company's federal business was about $50 million, and slower global growth is hindering sales as well.
The U.S. economy will grow 1.9 percent in the final three months of this year, less than the 2.4 percent pace that economists projected in October, according to the median forecast in a Bloomberg survey from Nov. 8 to Nov. 13.
The figure will reflect a decline in government output, estimated by the number of hours put in by federal workers, as well as cutbacks at contractors, economists said.
The effect of the budget impasse on the economy and lack of faster progress in the job market are among reasons that help explain why U.S. central bankers are continuing with $85 billion in monthly asset purchases.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
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