Industrial Production in U.S. Drops 0.4% on Sandy Effect

Industrial Production in U.S. Decreases 0.4% on Sandy Effect
Employees assemble food containers to packaged on a production line at the Newell Rubbermaid Inc. factory in Mogadore, Ohio. Photographer: Ty Wright/Bloomberg

Industrial production unexpectedly fell in October as superstorm Sandy disrupted output of goods from food to chemicals, adding to the woes of companies contending with cooling global demand.

Production at factories, mines and utilities dropped 0.4 percent after a revised 0.2 percent increase in September that was smaller than previously estimated, Federal Reserve data showed today in Washington. Economists projected a 0.2 percent gain, according to the median forecast in a Bloomberg survey.

Manufacturing, which makes up 75 percent of total production, slumped 0.9 percent and was little changed excluding the effects of the storm, the Fed said. Europe’s recession and slower growth in Asia risk stemming overseas orders, while sales of capital equipment falter as U.S. companies brace for the so-called fiscal cliff of federal spending cuts and tax increases.

“Manufacturing is pretty much treading water,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York and the top-ranked forecaster on the U.S. economy, according to data compiled by Bloomberg. “There’s soft domestic demand and weakening export demand. The overall trend hasn’t changed much regardless of the storm.”

Stocks rose as House Speaker John Boehner said budget talks with President Barack Obama were constructive. The S&P 500 climbed 0.5 percent to 1,359.88 at the close in New York.

Elsewhere, Japanese Prime Minister Yoshihiko Noda’s decision to call an election in December may inhibit the government’s ability to stimulate an economy that’s sliding toward its third recession in four years.

The decline in U.S. manufacturing matched the drop in August as the biggest since May 2009, today’s Fed report showed.

Railroads Disrupted

Sandy, which came ashore Oct. 29, killed more than 100 people, disrupted rail and subway service, and left more than 8 million homes and businesses without power for days.

United Technologies Corp.’s Pratt & Whitney unit, the third-largest aircraft-engine maker, said some of its suppliers in the Northeast were affected.

“Most are now operational,” company spokesman Bryan Kidder said in an e-mail last week. “We worked closely with suppliers and freight carriers to reroute material originally scheduled to be routed through New York, and as a result we have experienced minimal impact to our operations.”

Old Dominion Freight Line Inc., a Thomasville, North Carolina-based shipper of consumer and capital goods, said Sandy prevented it from meeting projections for a 5.5 percent to 6 percent increase in tonnage shipped in October from a year earlier.

Lost Revenue

“Our October tonnage was up only 4 percent so we came up short, but the reduction was primarily due to several days of lost revenue at the very end of October due to the storm,” David Congdon, president and chief executive officer, said at a Nov. 7 industrial conference in Chicago.

A pair of reports yesterday showed the effects of the storm extended into November as manufacturing contracted in the Fed’s New York and Philadelphia regions, which cover New York, New Jersey, eastern Pennsylvania, Connecticut and Delaware.

The Fed today said the storm cut total industrial production by almost 1 percentage point last month. September’s figure was previously reported as a 0.4 percent increase.

Output at utilities fell 0.1 percent in October after no change in September, today’s report showed. The largest estimated storm-related effects included production cutbacks in utilities, chemicals and electronics, the Fed said. Mining, which includes oil drilling, increased 1.5 percent, the biggest gain since October 2011.

Motor Vehicles

Motor vehicle and parts output decreased 0.1 percent after a 1.8 percent drop a month earlier. Auto manufacturing has been a bright spot in the economy, with cars and light trucks selling at a 14.22 million annual rate in October after climbing to 14.88 million in September, the strongest since March 2008, according to Ward’s Automotive Group.

Output of business equipment fell 1.2 percent, the biggest drop since May 2009. Consumer goods production declined 0.9 percent, led by non-durables such as food, paper and clothing.

Capacity utilization, which measures the extent to which plants are achieving their full potential output, decreased to 77.8 percent from 78.2 percent.

Companies such as W.W. Grainger Inc., a Lake Forest, Illinois-based supplier of tools and equipment, are finding more restraint in corporate investment as the U.S. gets closer to the fiscal cliff.

“We’re not seeing anyone that’s stepping out and taking big chances with large projects or capital investments,” James T. Ryan, president and chief executive officer at W.W. Grainger, said on a Nov. 14 conference call with analysts.

Download: UBS’s Matus Sees `Upward Trend’ for Hiring in U.S.


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