Unbowed by a global slowdown or rising dollar, U.S. manufacturing roared ahead in November, giving the world’s largest economy a charge heading into 2015.
Industrial production jumped 1.3 percent after a 0.1 percent increase in October, figures from the Federal Reserve showed today in Washington. Output of consumer goods, including autos, electronics and energy, surged by the most in 16 years.
A firming job market and drop in fuel costs are giving households the means to boost spending, shielding American factories from cooling demand in Europe and a rising currency that makes goods more expensive to foreign customers. Another report showed homebuilder confidence hovered in December near a nine-year high, indicating the U.S. expansion is broad-based as Federal Reserve policy makers meet to consider how and when to wean the economy away from ultra-low interest rates.
“With consumer demand and business demand strengthening together, it is self-reinforcing,” said Laura Rosner, a U.S. economist at BNP Paribas in New York and a former New York Fed researcher. “The gain in production sets us up for a solid pace of growth next year.”
Stocks retreated, sending the Standard & Poor’s 500 Index to its fifth decline in six sessions, as crude prices tumbled. The S&P 500 fell 0.6 percent to 1,989.63 at the close in New York.
Fed officials led by Chair Janet Yellen will gather Dec. 16 and 17 in Washington for their last policy making meeting of the year. Up for consideration will be whether to drop their stated intention to hold short-term interest rates near zero for a “considerable time” after they ended their asset-purchase program in October.
The situation contrasts with Europe. More than 90 percent of respondents in a Bloomberg monthly survey predicted the European Central Bank will begin large-scale buying of government bonds next year, up from 57 percent last month, in order to spur growth. An announcement will most likely come in the first quarter, the poll of 55 economists showed.
The median forecast in a Bloomberg survey of 81 economists projected U.S. industrial production would rise 0.7 percent. Estimates ranged from gains of 0.2 percent to 1.3 percent after a previously reported 0.1 percent decrease in October.
The Fed report showed manufacturing rose 1.1 percent, the most in nine months.
While manufacturing is strengthening, its role in the U.S. economy isn’t getting bigger, and remains smaller it had been previously. It accounts for about 12 percent of the economy, down from about 25 percent in the 1960s.
The report showed output at utilities was the strongest in almost eight years. Last month was the coldest November since 2000, according to the National Oceanic and Atmospheric Administration, which probably contributed to more electricity and gas use.
Production of consumer goods advanced 2.5 percent in November, the largest gain since August 1998.
The output of motor vehicles and parts increased 5.1 percent, the first gain since July, today’s report showed. Excluding autos and parts, factory production rose 0.9 percent after rising 0.5 percent in the prior two months.
Industry data show robust demand for vehicles. Sales of cars and light trucks rose to a 17.1 million annualized rate in November from a 16.4 million pace a month earlier, according to figures from Ward’s Automotive Group. Toyota Motor Corp. and General Motors Co. reported bigger gains than projected.
Construction-supply producers were among those churning out more goods last month, a sign residential real estate is also on the mend.
While the National Association of Home Builders/Wells Fargo sentiment gauge decreased to 57 this month from 58 in November, readings greater than 50 mean more respondents said conditions were good, the Washington-based group reported today.
The housing market has made gradual improvement this year, helped by mortgage rates below 4 percent and unemployment at the lowest level in six years. A pickup in wage growth and sustained gains in consumer sentiment will support momentum in the industry into next year.
“We are in a slow march back to normal,” David Crowe, NAHB chief economist, said in a statement. “As we head into 2015, the housing market should continue to recover at a steady, gradual pace.”
A Commerce Department report tomorrow will probably show housing starts rose to a 1.04 million pace in November from a 1.01 million rate a month earlier, according to the median estimate in a Bloomberg survey.
Capacity utilization, which measures the amount of a plant that is in use, rose to 80.1 percent in November, the highest since March 2008, according to today’s Fed production report. It’s now returned to the average since the early 1970s, a sign the economy is taking up excess slack.
Stronger domestic demand is underpinning factories. Retail sales rose 0.7 percent in November, the most in eight months, as consumers snapped up electronics, clothing and furniture, according to Commerce Department figures last week.
The industry still faces some hurdles. The outlook for other big economies has worsened. Economists surveyed by Bloomberg expect China to grow 7.4 percent this year, the weakest since 1990, as the country’s real estate and construction boom falters. In Japan, government figures showed the economy contracted 1.9 percent in the third quarter.
Deere & Co.
Deere & Co., the world’s largest farm-equipment maker, in November forecast lower-than-expected earnings for fiscal 2015 as a slump in crop prices means farmers are buying fewer of its most profitable machines.
At the same time, Deere’s construction segment is doing better as the U.S. economy improves. Sales of smaller equipment to livestock farmers, who are benefiting from lower feed costs and higher meat prices, are also helping it offset some of the decline in large farm-machinery sales, the Moline, Illinois-based company said.
The drop in fuel costs is restraining other forms of output. Oil- and gas-well drilling dropped 0.5 percent in November on the heels of a 0.8 percent decline the prior month, according to today’s report.