Factory Produciton Rebounds as U.S. Sustains Expansion

Production at American factories rebounded, claims for jobless benefits fell to a 14-year low and households held the most optimistic views in two years, signs the world’s largest economy is overcoming a global slowdown.

Manufacturing output climbed 0.5 percent in September, springing back from a 0.5 percent drop the prior month, as factories pushed out more computers, appliances and building-supplies, according to Federal Reserve data issued today in Washington. Other reports showed the momentum is being sustained as the fewest workers since April 2000 filed applications for unemployment insurance last week and more consumers said this month that the economy will get better.

The reports bolster forecasts that the U.S. expansion will survive the weakening in Europe and emerging nations that has roiled global financial markets. American consumer spending, which accounts for almost 70 percent of the economy, is likely to strengthen as employment keeps growing and confidence climbs.

“If U.S. growth holds in like we think it will, that would pull the rest of the global economy along and calm some of the fears,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The data is still consistent with good, solid growth in the U.S. We’re not seeing much evidence that global developments are affecting us.”

Stocks recovered from early losses after Federal Reserve Bank of St. Louis President James Bullard said in an interview with Bloomberg that the central bank should consider delaying the end of its bond-buying program to halt the decline in inflation expectations. The Standard & Poor’s 500 Index ended up 0.27 point, or less than 0.1 percent, at 1,862.76 at the close in New York after being down as much as 1.5 percent earlier today.

Fed’s Bullard

“Inflation expectations are declining in the U.S.,” he said in Washington. “That’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE.”

The Fed’s production report showed total output, including mines and utilities, advanced 1 percent last month, the biggest gain since November 2012 and exceeding the highest forecast of any economist surveyed by Bloomberg.

In addition to the gain in manufacturing, the jump was driven by a 3.9 percent surge at utilities, the biggest since May 2012, reflecting demand for air conditioning as temperatures turned unseasonably warm last month, the report said.

The median forecast in a Bloomberg survey of 80 economists called for a 0.4 percent rise in total production. Estimates ranged from gains of 0.1 percent to 0.8 percent. The August reading was revised to show a 0.2 percent drop from a previously reported 0.1 percent decline.

Fewer Claims

The number of workers filing jobless claims decreased by 23,000 to 264,000 in the week ended Oct. 11, lower than any projection in the Bloomberg survey of economists, Labor Department data showed today.

“This is a little bit heartening,” said Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, whose projection for claims matched the lowest in the survey. “It sets up a pretty good October employment report.”

A sustained drop in firings typically coincides with a pickup in hiring. Employers added 248,000 workers to payrolls in September, according to Labor Department data. The unemployment rate fell to 5.9 percent, the lowest since 2008. Job gains stayed on pace for their best year since 1999.

The pickup in hiring and drop in gasoline prices is lifting Americans’ spirits. The Bloomberg Consumer Comfort Index’s monthly measure tracking the economic outlook climbed to 51 in October, the strongest since November 2012, from 41.5 the prior month, according to another report today. The weekly sentiment index was little changed at 36.2 for the period ended Oct. 12 from 36.8.

Broad-Based Gain

The Fed’s production report showed business-equipment output rose 0.3 percent in September, computers and electronic products climbed 0.8 percent, and factories churned out more appliances and furniture.

One soft spot was auto output, which is taking a breather after surging earlier in the year. Production of cars, trucks and parts decreased 1.4 percent after a 7 percent slump in August, today’s report showed.

“The fact that we can get a 1 percent increase in production when you have a decline in the auto sector is striking,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “There’s broad-based strength. Industrial production is solid.”

Auto industry figures show car and truck sales, which have helped power production gains, cooled last month. Motor-vehicle purchases slowed to an annualized rate of 16.3 million, the weakest since April, from 17.5 million in August, according to data from Ward’s Automotive Group.

Ford Hiring

Ford Motor Co. is among those automakers that remain upbeat. The second-biggest U.S. carmaker is adding workers at its Dearborn, Michigan, plant as it prepares for its new aluminum-bodied F-150 pickup. The truck is scheduled to arrive in showrooms by the end of the year.

“These new jobs will help meet anticipated customer demand,” said Joe Hinrichs, Ford’s president of the Americas, during an Oct. 13 announcement. The company has hired more than 23,000 employees since 2011.

The increase in total production is soaking up unused potential. Capacity utilization, which measures the amount of a plant in use, rose to 79.3 percent in September, the highest since June 2008, from 78.7 percent the prior month.

Another report today indicated the gain in manufacturing will be sustained. The Philadelphia Fed’s factory index for October came in at a stronger-than-forecast 20.7 compared with 22.5 the prior month. Readings greater than zero signal growth in the region and the gauge has averaged 8.2 since the current economic expansion began in June 2009.

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