U.S. Industrial Production Rises in Stabilization Sign

American manufacturers churned out more appliances, clothing and construction supplies in September, indicating a mainstay of the early part of the economic expansion is regaining its footing.

Output at factories, mines and utilities rose 0.4 percent, beating the median forecast of economists surveyed by Bloomberg, after a 1.4 percent drop in August that was the biggest since March 2009, according to data from the Federal Reserve issued today in Washington. Other reports showed there was little inflation outside of fuel costs and homebuilder confidence climbed to a six-year high.

The biggest back-to-back gain in retail sales in almost two years points to a pickup in consumer spending that may help offset a pullback in business investment. At the same time, a global slowdown that is hurting exports represents a hurdle for manufacturing.

“The economy is regaining momentum it appeared to have lost in the spring,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh who correctly forecast the production gain. “I don’t think manufacturing is down for the count.”

Shares climbed as corporate earnings topped estimates. The Standard & Poor’s 500 Index rose 1 percent to 1,454.92 at the close in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.72 percent from 1.66 percent late yesterday.

German Confidence

Overseas, German investor confidence climbed in October for a second month and minutes of the Reserve Bank of Australia’s last meeting showed the central bank saw scope to cut borrowing costs further.

The cost of living in the U.S. rose in September for a second month, reflecting a jump in energy expenses that failed to trickle through to other goods and services, a report today from the Labor Department also showed.

The consumer-price index increased 0.6 percent for a second month. Economists surveyed by Bloomberg had forecast a 0.5 percent advance. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.

Companies such as Abercrombie & Fitch Co. and Safeway Inc. are among those saying price increases are difficult to achieve as 12.1 million Americans remain unemployed and rising fuel bills eat into workers’ paychecks. The lack of pricing power is one reason the Fed eased policy further to focus on jump- starting employment.

Little Risk

“There isn’t any meaningful risk of short-term core inflation,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the gain in core prices. “When it comes to everyday goods and services, the lack of demand just isn’t going to push prices higher.”

The median estimate in a Bloomberg survey of 85 economists called for production to rise 0.2 percent. Projections ranged from a drop of 1 percent to an increase of 0.7 percent.

Industrial output grew 8.1 percent in the first 12 months of the recovery than began in June 2009, and expanded 2.8 percent in the year to September.

Manufacturing, which makes up 75 percent of total production, climbed 0.2 percent last month after falling 0.9 percent in August, today’s Fed report showed. Factories account for about 12 percent of the economy.

The Fed report showed the output of consumer goods was little changed last month as a slowdown in auto assemblies was offset by pickups in the manufacturing of appliances and clothing.

Consumer Spending

Retail sales climbed 1.1 percent in September following a 1.2 percent increase the prior month, the best back-to-back showing since late 2010, according to Commerce Department figures yesterday. Twelve of 13 categories showed an improvement in demand, including auto dealers and electronics stores.

Production of motor vehicles and parts decreased 2.5 percent after a 5.1 percent drop a month earlier, according to today’s Fed data. The decrease is at odds with gains in sales and may indicate automakers will boost output in the last three months of the year.

Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008, according to Ward’s Automotive Group. Chrysler Group LLC and General Motors Co. reported gains.

‘Positive Signs’

“We continue to be encouraged by positive signs from the housing sector, lower jobless claims, higher consumer sentiment and higher consumer spending,” Kurt McNeil, GM’s vice president of U.S. sales, said on an Oct. 2 conference call. “The stiffest headwinds are uncertainty, some of which is related to the sovereign debt crisis in Europe and concerns about the pace of growth here at home.”

Excluding autos and parts, manufacturing production climbed 0.4 percent after decreasing 0.6 percent in August.

The report is in line with other figures released earlier this month. The Institute for Supply Management’s factory index rose to 51.5 in September from 49.6 the prior month, the Tempe, Arizona-based group said on Oct. 1. It was the first reading greater than 50, signaling expansion, since May.

Mining production, which includes oil drilling, increased 0.9 percent in September after falling 1.6 percent the prior month, according to today’s Fed report. Utility output advanced 1.5 percent after a 4.3 percent drop in August.

Production Gains

The figures also showed output of business equipment rebounded 0.8 percent last month after falling 0.9 percent in August. Machinery output climbed 0.4 percent after falling 0.6 percent, and construction supplies gained 1.3 percent.

Housing is one part of the economy that is showing more pronounced gains. Homebuilder confidence climbed in October for a sixth straight month, adding to signs the real-estate market is healing, another report showed today.

The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006, from 40 in September. Nonetheless, readings lower than 50 mean more respondents said conditions were poor.

A report tomorrow may show builders began work on 770,000 homes in September, the most since October 2008, according to the median forecast of economists surveyed.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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