U.S. factory activity gaining steam as production broadens


By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing output rose for a fourth straight month in November as production increased almost across the board, in the latest suggestion the economy is gaining steam.

Production at the nation's factories advanced 0.6 percent last month, building on October's 0.5 percent gain, the Federal Reserve said on Monday.

While a 3.4 percent rebound in auto production accounted for a large portion of the increase, there also were gains in other industries such as fabricated metals, textiles, furniture and electrical equipment and appliances.

That increase in manufacturing combined with a jump in mining and utilities output to boost industrial production 1.1 percent, the largest increase since last November.

Industrial output had edged up 0.1 percent in October and economists had expected it to rise 0.5 percent last month.

"This was a very strong report, and the broad-based gains in output across the various sectors provides a very encouraging narrative on the overall tone of domestic economic activity," said Millan Mulraine, senior economist at TD Securities in New York.

Economists said the strong industrial production data bolstered the argument for the Federal Reserve to start reducing the pace of its monthly bond purchases.

It added to reports such as retail sales and employment that have painted an upbeat picture of the economy.

Other data on Monday suggested manufacturing continued to expand in December, though at a slightly slower pace. However, economists cautioned against reading too much into the reports saying they were poor predictors of national factory activity.

Financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers Index dipped to 54.4 from a 10-month high of 54.7 in November. A reading above 50 signals expansion in economic activity.

In a separate report, the New York Fed said its "Empire State" general business conditions index edged back into positive territory at 0.98 from minus 2.21 in November.

That was short of economists' expectations for a reading of 4.75. A reading above zero indicates expansion. There was a sharp decline in inventories, a good sign for future production.


"Taken at face value for the New York region, the index suggests a modest improvement in manufacturing conditions but one that resulted in a massive liquidation of inventory," said John Ryding, chief economist at RDQ Economics in New York.

"It is difficult to take this series seriously given its volatility but if inventories were drawn down sharply, this is a constructive signal for manufacturing conditions going forward."

A cold snap last month boosted the nation's utilities output, which increased 3.9 percent after falling 0.3 percent in October. That should also support consumer spending in the fourth quarter.

Mining production rose 1.7 percent as oil and gas rigs in the Gulf of Mexico, which were temporarily shut in October because of Tropical Storm Karen, reopened. Mining output had dropped 1.5 percent in October.

Last month, the amount of industrial capacity in use increased to 79 percent from 78.2 percent in the prior month.

Industrial capacity utilization - a measure of how fully firms are using their resources - was 1.2 percentage points below its long-run average.

Officials at the Fed tend to look at utilization measures as a signal of how much "slack" remains in the economy, and how much room growth has to run before it becomes inflationary.

(Reporting by Lucia Mutikani, Additional reporting by Richard Leong and Rodrigo Campos in New York; Editing by Andrea Ricci)

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