Nov. 17 (Bloomberg) -- U.S. industrial production rose more than forecast in October as refineries and oil rigs restarted operations in the Gulf of Mexico following shutdowns caused by Hurricanes Gustav and Ike.

The 1.3 percent increase in production at factories, mines and utilities followed a revised 3.7 percent drop in September that was the biggest since 1946, the Federal Reserve said today. Excluding the effect of the storms and a strike at Boeing Co., output would have shrunk about 0.7 percent in October and September, the Fed said.

The deepening credit crisis coupled with weakening global demand is forcing companies to cut back on investments for heavy machinery and manufactured goods. Today's report showed output of automobiles, computers, furniture and metals all dropped.

``Manufacturing is going south in a very big way,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Export demand is falling apart, and domestic demand has already fallen apart.''

Industrial production was forecast to rise 0.2 percent after a previously reported 2.8 percent drop in September, according to the median estimate of 64 economists surveyed by Bloomberg News. Projections ranged from a drop of 1 percent to a gain of 1.7 percent.

Capacity utilization, which measures the proportion of plants in use, climbed to 76.4 percent from 75.5 percent the prior month.

New York Manufacturing

A separate report showed manufacturing in New York contracted in November at the fastest pace on record as orders and sales plunged. The Federal Reserve Bank of New York's general economic index fell to minus 25.4, the lowest since records began in 2001, from minus 24.6 percent in October, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Factory output, which accounts for about four-fifths of industrial production, increased 0.6 percent, led by a rebound in petroleum and chemical products that reflected the resumption of operations from the storms.

Utility production increased 0.4 percent after rising 2.4 percent. Mining output, which includes oil drilling, jumped 6.1 percent after falling 8.5 percent in September.

Oil production operations and other facilities have resumed work after being shut down because of Hurricane Ike, which made landfall on the Gulf Coast of Texas on Sept. 13, less than two weeks after Hurricane Gustav struck Louisiana.

Capacity Use

Industrial capacity utilization was estimated to increase to 76.5 percent from 76.4 percent, according to the Bloomberg survey median.

Motor vehicle and parts production dropped 3.5 percent following a 1.3 percent increase the prior month, the report said. Factories assembled just 8.09 million motor vehicles at an annual pace last month, the fewest since 1991.

Production of consumer durable goods, including automobiles, furniture and electronics, fell 2.1 percent.

Auto industry figures earlier this month showed cars and light trucks sold at a 10.6 million annual pace in October, the lowest since April 1991. President-elect Barack Obama is pushing Congress to approve as much as $50 billion this year for cash-starved U.S. automakers.

Industrial production in October also was weakened by a now-resolved 8-week strike by approximately 27,000 machinists at Boeing, the world's second-largest commercial planemaker.

Other reports indicate a bleak outlook for manufacturing. The Institute for Supply Management's factory index for October dropped at the fastest pace in 26 years, the Tempe, Arizona- based group said Nov. 3.

Slowing demand in the U.S. and abroad is causing some companies to trim their payrolls. U.S. Steel Corp., the largest U.S.-based steelmaker by 2007 sales, will cut 500 American jobs amid a ``dramatic downturn'' in the economy, John Armstrong, a spokesman, said in a telephone interview Nov. 13.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: November 17, 2008 09:37 EST