Factory output in U.S. rose more than forecast in October

Mining, Utilities

Utility output dropped 1.1% after a 4.5% surge the previous month. Mining production, which includes oil drilling, decreased 1.6%, 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 Fed said.

The output of motor vehicles and parts decreased 1.3%, the first decline in three months, today’s report showed. Excluding autos and parts, manufacturing production climbed 0.4% after no change the previous month.

“There’s a lot of volatility in these numbers and auto production can be very lumpy,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York.

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% annualized pace in the third quarter, after a 2.5% 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 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 Ford Motor Co., 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% in the final three months of this year, less than the 2.4% 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.

www.bloomberg.com

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