Oct industrial production takes an unexpected turn downwards

Washington

INDUSTRIAL production in the United States unexpectedly dropped in October, weighed down by declines at utilities, mines and automakers that signal manufacturing started the fourth quarter on a soft footing.

Output fell 0.1 per cent after a 0.8 per cent increase in September that was smaller than previously estimated, figures from the Federal Reserve in Washington showed on Monday. Factory production rose 0.2 per cent, matching the prior month's advance that was also revised down.

A pick-up in manufacturing is needed to help bolster the expansion, now in its sixth year, as global growth from Europe and Japan to emerging markets cools. Rising consumer confidence and the drop in petrol prices are brightening the outlook for holiday sales, indicating factories will get a lift in the next few months.

"The weakness in Europe and the rest of the world may mean more sluggish growth, maybe declines in some areas of exports," weakening manufacturing output, said Scott Brown, chief economist at Raymond James & Associates Inc. "On the other hand, we expect domestic demand to continue to strengthen."

Manufacturing, which makes up 75 per cent of total production, was forecast to increase 0.2 per cent, according to the survey median.

The output of motor vehicles and parts decreased 1.2 per cent in October, a third consecutive decline, Monday's report showed. Excluding autos and parts, manufacturing rose 0.2 per cent.

While industry data earlier this month that is used to calculate gross domestic product showed little change in demand for the prior month, Ford Motor, Toyota Motor, Fiat Chrysler Automobiles NV and Nissan Motor exceeded analysts' estimates as buyers emboldened by falling petrol prices flocked to sport-utility vehicles.

Automakers remain upbeat about the outlook for the economy and consumer.

"Consumer confidence has risen above its recent range in the past two month's readings and falling commodity prices represent an additional financial windfall for consumers," Ford chief economist Emily Kolinski Morris said on a Nov 3 conference call. "Manufacturing indicators remain robust, and labour market indicators continue to show signs of steady though modest improvement."

Other areas showed gains last month, pointing to sustained advances in US corporate spending. Business-equipment production increased 0.6 per cent after a 0.4 per cent drop in September. Output of machinery climbed as demand grew for computers and electronics.

Consumer goods production fell 0.2 per cent last month, led by the decline in autos.

Monday's report compares with data from the Institute for Supply Management that showed manufacturing advanced last month at a faster pace. The group's factory index increased to 59 in October, matching August as the highest since March 2011, after 56.6 the prior month.

The economy may grow at a 2.6 per cent clip in the fourth quarter after expanding 3.5 per cent in the three months ended September. Gains in business and consumer spending will be needed to sustain momentum heading into the new year. BLOOMBERG