Factory Output Surges in Sign of U.S. Economy's Strength

Operations Inside The Nanette Lepore Facility Ahead Of Empire State Manufacturing
Atisha Paulson/Bloomberg via Getty ImagesAn employee sews during production at the Nanette Lepore manufacturing facility in New York.

By Lucia Mutikani

WASHINGTON -- U.S. manufacturing output recorded its largest increase in nine months in November as production expanded across the board, pointing to underlying strength in the economy.

Factory production increased 1.1 percent last month after an upwardly revised 0.4 percent advance in October, the Federal Reserve said Monday.

%VIRTUAL-pullquote-There is little evidence here that weaker global growth or a stronger dollar has hurt U.S. manufacturing.%"There is little evidence here that weaker global growth or a stronger dollar has hurt U.S. manufacturing," said John Ryding, chief economist at RDQ Economics in New York.

The upbeat factory data joined bullish employment and retail sales reports in suggesting strength in the economy, even as growth in the fourth quarter is expected to moderate sharply after two back-to-back quarters of robust expansion.

Wall Street had expected manufacturing output to rise only 0.5 percent in November after a previously reported 0.2 percent gain in October.

But the optimism over the manufacturing sector was tempered somewhat by a second report from the New York Federal Reserve showing its Empire State general business conditions index fell to -3.58 in December, the first contraction since January 2013, from a reading of 10.16 in November.

Economists said the New York Fed survey was volatile because of limited factory activity in the region.

"On balance, however, the weak reading is consistent with slower manufacturing activity late in the quarter," said Jesse Hurwitz, an economist at Barclays in New York.

A third report showed homebuilder sentiment ebbed in December, though builders remained more optimistic than in the first half of the year.

Broad Gains

The data comes a day before Federal Reserve officials gather for a two-day meeting to assess the economy's health and deliberate on monetary policy.

Economists expect the U.S. central bank to open the door a bit wider to interest rate hikes next year ater the recent run of bullish data.

U.S. stocks were trading slightly lower, while prices for Treasury debt fell. The dollar was up marginally against a basket of currencies.

%VIRTUAL-WSSCourseInline-876%Overall manufacturing output increased broadly in November, with a 5.1 percent jump in automobile production after three straight months of decline. There were also solid gains in machinery, apparel and leather, and petroleum and coal products.

Mining output slipped 0.1 percent last month, while utilities production jumped 5.1 percent as a cold snap boosted demand for utilities.

The gain in manufacturing and utilities combined to lift overall industrial production by 1.3 percent in November, the largest increase since May 2010.

The amount of manufacturing capacity in use last month rose to its highest since December 2007. Overall industrial capacity use hit its highest level in more than 6½ years.

"The sharp rise in pace of capacity utilization is of particular interest as it could be seen as an indication of accelerating resource slack absorption in the U.S. economy," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to run before it becomes inflationary.

-With additional reporting by Rodrigo Campos and David Gaffen in New York.