Oct. 16 (Bloomberg) -- Industrial production in the U.S. probably rose in September for a third consecutive month, putting manufacturing at the forefront of the emerging economic recovery, economists said before reports today.

Output at factories, mines and utilities climbed 0.2 percent following increases of 0.8 percent and 1 percent respectively in August and July, according to the median forecast of 77 economists surveyed by Bloomberg News. Another report may show consumer sentiment this month eased off the highest level in more than a year.

The recent burst of activity on factory floors, spurred in part by a rebound at automakers, may give way to more moderate and sustainable gains in coming months as companies rebuild inventories and exports grow. The improvement has yet to lead to an increase in jobs, underscoring why Federal Reserve policy makers say they will keep interest rates low for a long time.

Manufacturing has made “a decisive turn” and “output is likely to continue to edge higher, but at a slower pace,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. The lack of jobs is one reason why further gains in consumer confidence may be limited, she said.

The Fed’s industrial production figures are due at 9:15 a.m. in Washington. Economists’ estimates ranged from a drop of 0.5 percent to a gain of 0.5 percent. Manufacturing accounts for about 12 percent of the U.S. economy.

Confidence Slips

The Reuters/University of Michigan preliminary index of consumer confidence, due at 10 a.m., probably slid to 73.3 this month from a 73.5 reading in September that was the highest since January 2008, according to the survey median. Economists’ estimates ranged from 70 to 77.1.

The Standard & Poor’s 500 Index has climbed 62 percent from a 12-year low on March 9 on optimism about the economic rebound. The S&P closed up yesterday as energy shares gained after oil rallied to the highest price in a year.

The gain in manufacturing is extended to this month, regional reports showed yesterday. The New York Fed’s Empire State index soared to the highest level since mid-2004, while the Philadelphia Fed’s gauge eased off September’s two-year high.

Capacity utilization, or the proportion of plants in use, probably climbed to 69.8 percent, the highest level since February, economists surveyed said today’s Fed report may also show. Economists track operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

Fed Minutes

Minutes of the Fed’s September meeting, released this week, showed policy makers believed “overall economic activity was beginning to pick up,” and noted the improvement in factory output, particularly motor-vehicle production.

“Cash for clunkers,” which offered incentives of as much as $4,500 for consumers to trade in old cars for more fuel- efficient ones, helped automakers trim stockpiles as sales climbed in July and August. Industry data showed sales plunged in September after the plan expired on Aug. 24.

General Motors Co. and Toyota Motor Corp. have predicted sales gains for the fourth quarter. GM on Oct. 7 said it plans to boost output to 655,000 vehicles in North America during this quarter to match increasing demand.

Some manufacturers are still waiting for a pickup in demand. W.W. Grainger Inc., a Lake Forest, Illinois-based distributor of building-maintenance supplies, reported that sales fell for the fourth consecutive quarter.

“While daily sales remain stable, we are not yet seeing a catalyst for a sustained economic turnaround” in any major market, Grainger Chief Executive Officer James Ryan said in a statement on Oct. 14.

                        Bloomberg Survey

======================================================
                              Ind.     Cap. U of Mich
                             Prod.    Util.    Conf.
                              MOM%        %    Index
======================================================
Date of Release              10/16    10/16    10/16
Observation Period           Sept.    Sept.   Oct. P
------------------------------------------------------
Median                        0.2%    69.8%     73.3
Average                       0.2%    69.9%     73.4
High Forecast                 0.5%    74.0%     77.1
Low Forecast                 -0.5%    69.2%     70.0
Number of Participants          77       68       64
Previous                      0.8%    69.6%     73.5
------------------------------------------------------
4CAST Ltd.                    0.5%    70.0%     72.5
Action Economics             -0.1%    69.6%     74.0
AIG Investments               0.3%     ---      77.0
Ameriprise Financial Inc      0.5%    70.3%     73.0
Argus Research Corp.          0.2%    69.8%     72.0
Banesto                       0.2%     ---      73.4
Bank of Tokyo- Mitsubishi    -0.1%    69.4%     77.1
Bantleon Bank AG              ---      ---      72.5
Barclays Capital              0.2%    69.8%     74.0
Bayerische Landesbank         0.2%     ---      73.0
BBVA                          0.0%     ---      72.0
BMO Capital Markets           0.3%    69.8%     74.0
BNP Paribas                  -0.1%    69.4%     75.0
BofA Merrill Lynch Resear     0.3%    69.6%     75.0
Briefing.com                  0.4%    70.1%     74.0
Calyon                        0.1%    69.7%     73.5
Capital Economics             0.5%    69.8%     74.0
CIBC World Markets            0.4%    70.0%     71.0
Citi                          0.1%    69.7%     73.5
Commerzbank AG                0.4%    70.0%     72.0
Credit Suisse                 0.1%    69.8%     76.0
Daiwa Securities America      0.3%    69.7%     72.0
Danske Bank                  -0.2%     ---      74.7
DekaBank                     -0.2%    69.6%     73.0
Desjardins Group              0.0%    69.7%     72.5
Deutsche Bank Securities      0.1%    69.7%     75.0
Deutsche Postbank AG          0.2%     ---      74.5
DZ Bank                       0.2%    69.9%     ---
First Trust Advisors          0.2%    69.6%     73.5
Fortis                        0.5%     ---      73.0
FTN Financial                 0.3%    69.5%     73.0
Goldman, Sachs & Co.          0.4%    69.8%     ---
Helaba                        0.2%    69.8%     72.0
Herrmann Forecasting          0.0%    69.8%     73.1
High Frequency Economics      0.2%    69.8%     ---
HSBC Markets                  0.2%    69.8%     72.5
IDEAglobal                    0.2%    69.9%     74.0
IHS Global Insight            0.4%     ---      70.0
Informa Global Markets       -0.1%    69.6%     70.0
ING Financial Markets         0.4%    69.9%     72.1
Insight Economics            -0.1%    69.4%     75.0
Intesa-SanPaulo               0.2%    72.5%     ---
J.P. Morgan Chase             0.5%    70.0%     76.0
Janney Montgomery Scott L     0.3%    69.9%     ---
Jefferies & Co.               0.1%    69.6%     72.0
Landesbank Berlin            -0.3%    69.2%     70.5
Landesbank BW                -0.5%    69.2%     74.5
Maria Fiorini Ramirez Inc     0.1%    69.7%     ---
MFC Global Investment Man     0.1%    69.7%     75.0
Mizuho Securities             0.0%    69.7%     73.7
Moody’s Economy.com           0.2%    69.7%     76.5
Morgan Keegan & Co.           0.0%    69.6%     ---
Morgan Stanley & Co.          0.1%    69.8%     ---
Natixis                       0.2%    69.8%     74.0
Newedge                      -0.2%    74.0%     ---
Nomura Securities Intl.       0.2%    69.6%     ---
Nord/LB                       0.2%    70.0%     74.0
PNC Bank                      0.1%    69.5%     ---
Raymond James                 0.2%    70.0%     ---
RBC Capital Markets           0.0%    69.6%     72.0
RBS Securities Inc.           0.1%    69.9%     71.0
Ried, Thunberg & Co.          0.3%    69.9%     72.0
Schneider Foreign Exchang    -0.2%    69.6%     72.4
Scotia Capital                0.0%    70.0%     ---
Societe Generale              0.4%    70.0%     75.0
Standard Chartered            0.2%    69.8%     73.5
Stone & McCarthy Research    -0.1%    69.6%     72.5
TD Securities                 0.4%    70.0%     75.0
Thomson Reuters/IFR           0.4%    69.9%     74.0
UBS                           0.4%    70.0%     72.5
UniCredit Research            0.0%    69.7%     71.5
Union Investment              0.5%    70.5%     76.5
University of Maryland        0.1%    69.6%     73.0
Wells Fargo & Co.             0.3%    69.7%     ---
WestLB AG                     0.1%    69.6%     71.0
Westpac Banking Co.           0.0%     ---      74.0
Woodley Park Research         0.3%    70.0%     72.1
Wrightson Associates          0.3%    69.9%     72.0
======================================================

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

Last Updated: October 16, 2009 00:00 EDT