Nov. 16 (Bloomberg) -- Industrial production in the U.S. rose last month, propelled by a rebound in utilities and gains at computer and electronics manufacturers.

The 0.2 percent increase for October followed September's 0.6 percent decline, the Federal Reserve said today. Capacity utilization, which measures the proportion of plants in use, rose to 82.2 percent, from 82.1 percent a month earlier.

Unseasonably cool temperatures boosted demand for heating, and computer makers benefited from increasing orders as companies update equipment. Gains in manufacturing may help the economy, which expanded last quarter at the weakest pace in more than three years, weather the housing slump and regain momentum.

``The manufacturing sector is continuing to move at a decent, trend-like pace,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``We are left with is an economy that is doing OK. It's an economy that is generating slightly less inflation pressures.''

Consumer prices fell 0.5 percent in October for the second consecutive month, reflecting cheaper energy costs, the Labor Department reported today. Core prices, which exclude food and fuel, rose 0.1 percent, the smallest increase in eight months and adding to evidence that inflation pressures are easing.

The yield on U.S. Treasury securities dropped after the inflation report. The yield on the 10-year note fell to 4.58 percent at 9:10 a.m. in New York, down 4 basis points. A basis point is 0.01 percentage point.

Manufacturing Up Ex-Autos

Manufacturing production, which accounts for about four- fifths of total output, fell 0.2 percent for a second month in October, reflecting a slump in auto output. Excluding autos, factory production rose 0.1 percent, after a 0.1 percent September decline.

Economists had forecast industrial production would rise 0.3 percent, according to the median of 73 economists in a Bloomberg News survey. Estimates ranged from a decrease of 0.4 percent to an increase of 0.6 percent.

Capacity utilization was forecast to increase to 82 percent, from 81.9 percent in September, according to the survey. Projections ranged from 81.5 percent to 82.3 percent.

Plant operating rates, which economists monitor for indications of pressure on factories' ability to produce goods with existing resources, has averaged 81 percent over the last three decades. Higher operating rates raise the risk of bottlenecks in production that can force prices higher.

Fed officials were concerned in October about persistent inflation and became more optimistic about the outlook for economic growth, according to records of their Oct. 24-25 meeting released yesterday.

Less Risk of Slowdown

``Most members judged that the downside risks to economic activity had diminished a little,'' the Fed said the minutes. ``All members agreed that the risks to achieving the anticipated reduction in inflation remained the greatest concern.''

Fed policy makers are aiming to control inflation without derailing economic growth, which slowed to 1.6 percent last quarter, the slowest since 2003.

Utility production jumped 4.1 percent, the most since February, today's report said. U.S. temperatures in October were 0.9 degrees Fahrenheit cooler than average, according to the National Climatic Data Center in Asheville, North Carolina.

Mining output rose 0.6 percent last month, following a 0.4 percent increase, according to the Fed report.

Production of business equipment rose 0.7 percent last month, following a 0.2 percent September decrease. The gain was led by a 1.2 percent gain in computer production and a 2.5 percent jump in semiconductors.

Equipment Demand

Equipment makers are benefiting from higher demand. Emerson Electric Co., the world's largest maker of power equipment for utilities and oil companies, said last week that profit in the quarter ended Sept. 30 rose 26 percent, helped by orders from refineries and rising commercial construction spending.

AK Steel Holding Corp., a maker of steel products for the automotive, appliance, and construction industries, said it plans to boost production by 12 percent at plants in Pennsylvania and Ohio to increase output of electrical-sheet steel.

``We anticipate continued strong demand during the fourth quarter for our stainless and electrical products,'' Chief Executive Officer James Wainscott said in a statement Oct. 24.

Automobile and parts production dropped 3.9 percent after a 1.9 percent decrease the month before.

Some automakers have announced plans to scale back production for the rest of the year and next. Ford Motor Co., the second-largest U.S. automaker, plans to trim production in the first half of 2007 by as much as 12 percent, on top of a 16 percent cut in the second half this year.

Home Electronics

Output of consumer durable goods, including automobiles, furniture and electronics, fell 2.6 percent in October, after decreasing 1.8 percent a month earlier. Gains in production of home electronics partially offset the drop in auto output.

The slowdown in housing is hurting some manufacturers. Whirlpool Corp., the world's largest appliance maker, last month cut its 2006 forecast for shipments in North America. La-Z-Boy Inc., a home-furniture maker, cut its fiscal second-quarter profit forecast and predicted sales will be little changed from a year earlier.

``It's very soft right now at retail,'' La-Z-Boy Treasurer Mark Stegeman said in an interview last month.

Production of non-durable consumer goods, such as food, clothing and paper products, rose 0.3 percent last month, following a 0.6 percent decrease.

Retail sales in October fell 0.2 percent, after a revised 0.8 percent drop in September that was twice as large as originally reported, the Commerce Department said this week. Excluding a decline in service station sales which reflected a drop in the price of gasoline, sales rose 0.4 percent.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: November 16, 2006 09:38 EST