Production Gain Shows U.S. Factories to Spur Growth: Economy

Photographer: Daniel Acker/Bloomberg

A worker tack welds a ventilation duct as it is assembled at the Giese Manufacturing Co. in Dubuque, Iowa. Close

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Photographer: Daniel Acker/Bloomberg

A worker tack welds a ventilation duct as it is assembled at the Giese Manufacturing Co. in Dubuque, Iowa.

American assembly lines churned out more cars, electronics and furniture in November, showing manufacturing will help the world’s largest economy strengthen in 2014.

Factory production climbed 0.6 percent last month following a 0.5 percent gain in October that was larger than previously estimated, according to figures from the Federal Reserve issued today in Washington. Total industrial output jumped 1.1 percent, the most in a year and propelled by a rebound in utility use as temperatures dropped.

Manufacturing “is accelerating pretty significantly,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the top-ranked production forecaster over the past two years, according to data compiled by Bloomberg. “It’s one of the reasons growth looks like it’s accelerating going into 2014.”

Improving household spending and global sales will probably keep factory floors busy, benefiting companies such as Ford Motor Co. (F) Fed policy makers meeting this week are trying to gauge how much progress the economy has made in order to determine whether it’s time to trim monthly bond purchases.

The Standard & Poor’s 500 index rose 0.6 percent to 1,786.54 at the close in New York as investors tried to figure out how the data would affect monetary policy before the Fed’s two-day meeting that starts tomorrow.

Economists surveyed by Bloomberg are divided over when the central bank begins tapering, with 34 percent saying this month and 40 percent saying they’ll wait until March, according to results of a poll taken Dec. 6.

Factories Abroad

Manufacturing is also picking up in Europe. Euro-area factory output grew this month at a faster pace than economists forecast, led by Germany, as the currency bloc continued its gradual recovery from a record-long recession. An index based on a survey of purchasing managers climbed to a 31-month high, figures from London-based Markit Economics said today.

In China, manufacturing output unexpectedly fell to a three-month low, another report showed.

The median forecast in a Bloomberg survey projected U.S. factory production would increase 0.4 percent. Estimates ranged from 0.3 percent to 0.6 percent. Manufacturing output has climbed 1.5 percent over the past five months, three times more than the 0.5 percent gain in the first six months of the year.

The back-to-back increases in manufacturing, which makes up 75 percent of total production, were the strongest this year.

Auto Making

The production of motor vehicles and parts increased 3.4 percent after falling 1.3 percent in October, today’s report showed. Auto assemblies climbed last month to an 11.6 million annual rate, the most since June 2006. Excluding autos and parts, manufacturing rose 0.5 percent, indicating the pickup was broad-based.

Motor vehicles sold at a 16.3 million annual rate in November, the fastest since May 2007, according to Ward’s Automotive Group, led by gains at General Motors Co. (GM) and Chrysler Group LLC.

Ford is introducing 16 new vehicles in 2014 and will take on 5,000 more workers, the company said on Dec. 12. The payroll expansion will continue following the hiring of almost 6,500 workers this year. An increase in production will probably not come immediately as Ford has also said it will trim output in next year’s first quarter to help reduce inventory.

Stronger auto sales have also benefited companies such as DuPont Co. (DD), the biggest U.S. chemicals maker by market value. DuPont expects global growth in the 3 percent range next year, while industrial production should increase by 4 percent as Europe and Japan recover from recessions.

Improvement Ripples

“When you look at the automotive segment and the increases that are going to go on there, obviously, that would impact positively” some of our businesses such as polymers used to improve fuel efficiency, Chief Financial Officer Nicholas Fanandakis, said Dec. 10 at the Bank of America Merrill Lynch US Basic Materials Conference.

A survey from the National Association of Manufacturers found 78.1 percent of respondents were upbeat on the business outlook in the fourth quarter, the highest reading since the second quarter of 2012. The NAM/IndustryWeek survey, released today, showed that manufacturers anticipate an average sales increase of 3 percent over the next 12 months.

“Things are gaining a little momentum,” said David Sloan, a senior economist at 4Cast Inc. in New York, whose forecast for a 1.2 percent rise in total production was the closest in the Bloomberg survey. “I think we can be a little bit more optimistic about the prospects for next year.”

Growth Outlook

The economy will expand 2.6 percent in 2014 after growing 1.7 percent this year, according to the median forecast of economists surveyed by Bloomberg from Dec. 6 to Dec. 11.

Today’s Fed report also showed capacity utilization, which measures the amount of a factory that is in use, rose to 79 percent in November, the highest since June 2008, from 78.2 percent the month before.

Factory output of non-durable goods rose 0.5 percent, reflecting gains in textiles, petroleum and chemicals. Consumer goods production rose 1.5 percent, led by gains in home electronics, appliances and furniture.

A regional report earlier today showed factory activity in the New York region expanded less than forecast in December. The Federal Reserve Bank of New York’s general economic index rose to 1 this month from a November reading of minus 2.2. Readings greater than zero signal expansion in the index, which covers New York, northern New Jersey and southern Connecticut.

Inventories Climb

The outlook for production depends on whether demand is strong enough to keep pace with an increase in stockpiles. A report last week showed business inventories climbed 0.7 percent in October, the biggest jump since January.

Another report today showed workers were more efficient in the third quarter than previously estimated. Productivity for those employed by companies other than farms climbed at a 3 percent annualized rate, the best performance in almost four years, according to data from the Labor Department.

The gain meant the cost of each unit of labor dropped at a 1.4 percent pace from July through September, the report showed.

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net

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

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