Industrial production in the United States increased a higher-than-expected 1.3 percent in October after a revised decline of 3.7 percent in September, the Federal Reserve reported yesterday. September's production decline was seen initially falling to 2.8 percent while October's production was predicted to rise only by 0.2 percent.

However, industrial production went up 1.1 percent above economists' forecasts after crude oil and natural gas operations recovered from the effects of Hurricanes Gustav and Ike, and after the Boeing Co. machinists' strike ended. "Those disruptions along with the weak economy caused industrial production to fall by 3.7 percent in September, the biggest one-month drop since a 5 percent plunge in February 1946," as the Associated Press notes.

According to the Federal Reserve, manufacturing production rose by 0.6 percent in October while mine output advanced 6.1 percent and the output of utilities increased 0.4 percent.

Despite the gains, the manufacturing sector is still mired in recession and manufacturers' confidence remains low (sixth item). Excluding the hurricanes and strikes, total industrial production is estimated to have fallen 0.7 percent in September and October, according to the Feds. Excluding energy, October's industrial output slipped 0.1 percent. Total industrial production last month was 4.1 percent below the October 2007 level.

"There is no doubt that the U.S. economy is in trouble," MarketWatch quotes an economist for UniCredit Markets as having said. Industrial output is one of four monthly economic indicators used to gauge whether the economy is in recession, MarketWatch explains, but "no formal recession call has yet been made by the business cycle dating committee."

Despite October output being lower this year, there were increases in a month-to-month basis. Production of consumer goods went up 1.3 percent in October, and nondurable goods production rose again by 2.2 percent after a previous rise of 0.8 in September.

Durable goods, however, moved down 2.1 percent and the index for automotive products dropped 3.6 percent. The production of transit equipment, after plunging more than 30 percent in September, fell an additional 10 percent in October. The index for industrial and other equipment decreased by 1.7 percent and business equipment output fell 2.2 percent, according to the Fed report.

Mirroring the nation's manufacturing sector, the Federal Bank of New York's general economic index fell to a record low of minus 25.4 in November, signaling that manufacturing activity is shrinking, notes Bloomberg News.

"It's almost like a snowballing effect as we're starting to see the manufacturing numbers get worse,'' Maxwell Clarke, chief U.S. economist at New York-based research firm IDEAglobal, tells Bloomberg. "We expect sharp declines with a slow recovery from this recession.''

The New York Fed's measure of new orders slumped to minus 22.2 in November from minus 20.5 the prior month, and shipments dropped to minus 13.9 from minus 8, Bloomberg reports. The index of prices paid for raw materials, however, decreased to 20.5 from 31.7 in October.

Less inflation is one piece of good news to manufacturers as a recent survey by Prime Advantage showed that raw materials and energy costs remain the top cost pressures for manufacturers in the latter half of 2008. In a survey of 72 senior-level representatives of industrial manufacturing companies, 93 percent of respondents agree that raw materials top the list of concerns for the second half of 2008 while 67 percent agree that energy costs are "a major concern" for the rest of the year.

"It is becoming increasingly clear that deteriorating credit market conditions are impacting business spending," concluded Mike Englund, chief economist for Action Economics, in the MarketWatch report.

Earlier

Manufacturing Takes Deep Dive in October

U.S. Manufacturers Confidence Continues to Erode (sixth item)

New Durable Goods Orders Up in September

Resources
Industrial Production and Capacity Utilization
The Federal Reserve, Nov. 17, 2008

Industrial Output Rebounds, Moving Past Disruptions
by Martin Crutsinger
The Associated Press, Nov. 17, 2008

Industrial Output Comes Back Part Way from Storms
by Rex Nutting
MarketWatch, Nov. 17, 2008

New York Manufacturing Index Declines to Record Low
by Shobhana Chandra
Bloomberg News, Nov. 17, 2008

The Raw Reality
by Nick Zubko
IndustryWeek, Nov. 1, 2008