Industrial production in U.S. decreases 0.4% on Sandy effect

November 16, 2012 03:41 AM


Industrial production in the U.S. unexpectedly declined in October as superstorm Sandy knocked out power in the Northeast.

Output at factories, mines and utilities dropped 0.4 percent last month after a revised 0.2 percent increase in September that was smaller than previously estimated, Federal Reserve data showed today in Washington. Economists forecast a 0.2 percent gain, according to the Bloomberg survey median. The Fed said the storm cut total production by almost 1 percentage point.

American factories, a source of strength for much of the three-year expansion, face a persistent challenge from Europe’s recession and slower growth in Asia. Further cutbacks in capital spending by companies concerned about the possibility of $607 billion in automatic tax increases and spending reductions next year represent another hurdle for the industry.

“Manufacturing isn’t the driver of the recovery that it was,” John Ryding, chief economist at RDQ Economics in New York, said before the report. “Uncertainties over taxes hitting capital spending and problems overseas have hit the manufacturing sector.”

Manufacturing, which makes up 75 percent of total production, slumped 0.9 percent last month, matching August as the biggest decrease since May 2009. Excluding the effects of Sandy, factory output was about unchanged in October from the prior month, the Fed said.

Estimates of the 84 economists surveyed by Bloomberg for overall production ranged from a 0.3 percent decrease to a 0.6 percent gain. September’s figure was previously reported as a 0.4 percent increase.

Utility Output

Output at utilities fell 0.1 percent in October after no change in September, today’s data showed. The largest estimated storm-related effects included production cutbacks in utilities, chemicals and electronics, the Fed said.

Sandy, which swept ashore in the last week of October, killed more than 100 people in the U.S., disrupted rail and subway service, left more than 8 million homes and businesses without power.

A pair of regional factory reports yesterday showed the effects of the storm extended into November. The Federal Reserve Bank of New York’s general economic index was minus 5.2 this month after minus 6.2 in October. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut. The Philadelphia Fed’s economic index, which covers eastern Pennsylvania, southern New Jersey and Delaware, decreased to minus 10.7 in November from 5.7 a month earlier.

Mining production, which includes oil drilling, increased 1.5 percent, the biggest gain since October 2011.

Vehicle Production

Today’s figures showed motor vehicle and parts output decreased 0.1 percent after a 1.8 percent drop a month earlier. Auto manufacturing has been a bright spot in the industry, with cars and light trucks selling at a 14.22 million annual rate in October after climbing to 14.88 million in September, the strongest since March 2008, according to Ward’s Automotive Group.

Output of business equipment decreased 1.2 percent, the biggest drop since May 2009, after a 0.4 percent gain in September. Consumer goods production fell 0.9 percent last month, led by non-durable products such as food, paper and clothing.

Capacity utilization, which measures the extent to which plants are achieving their full potential output, decreased to 77.8 percent in October from 78.2 percent.

Capital Spending

Companies such as W.W. Grainger Inc., a Lake Forest, Illinois-based supplier of tools and equipment, are finding more restraint in corporate investment as the U.S. gets closer to the so-called fiscal cliff. Without resolution from lawmakers before year-end, taxes will increase and spending cuts will occur in 2013, threatening the economy with a recession.

“The volume on the fiscal cliff has absolutely notched up over the last several months,” James T. Ryan, president and chief executive officer at W.W. Grainger, said on a Nov. 14 conference call with analysts. “We’re not seeing anyone that’s stepping out and taking big chances with large projects or capital investments.”

Bloomberg News

About the Author