U.S.Industrial Production Surpasses Prerecession Peak

By Jeffrey Sparshott 

        WASHINGTON--U.S. manufacturing output climbed past its prerecession peak this fall, suggesting the American economy is on solid footing despite growing signs of weakness abroad.
        Factory output climbed 1.1% in November, the Federal Reserve said Monday, while October's figure was revised up to a 0.4% gain from a previously reported 0.2% increase. The revised figure put manufacturing that month above its previous peak in December 2007.
        "The Fed report illustrates the ability of the world's largest economy to remain insulated, for now, against the softening economic picture facing other industrialized regions around the world," Andrew Wilkinson, chief market analyst at Interactive Brokers, said in a note to clients.
        U.S. manufacturers have been expanding steadily amid relatively healthy domestic growth despite signs of overseas weakness. And overall industries--a category including manufacturers, utilities and mining--are now working nearer to full capacity than any point in more than six years.
        In the U.S., consumers are spending more as employers ramp up job creation and lower gasoline prices leave Americans with more discretionary income. A report last week showed Americans were buying more cars, electronics, furniture and other goods.
        But elsewhere the picture is less sunny. Japan slipped into recession during the third quarter, Europe's economy has been stagnant and new data out of China last week showed industrial output sliding to a three-month low in November.
        In the U.S., manufacturers appear to be shrugging off overseas turmoil.
        Factory output last month posted its largest increase since February, the Fed said. Rising motor-vehicle output drove the big gain for manufacturers, with production jumping 5.1%. But other sectors also expanded, including wood products, machinery, petroleum and coal products, apparel and leather, food, and plastics and rubber.
        The figures may help reassure Fed officials that the U.S. recovery is self-sustaining as they meet Tuesday and Wednesday to consider monetary policy and weigh economic crosscurrents between the U.S. and overseas.
        "The production gains over the last three months have been strong and broad-based and should further reinforce opinions among policy makers that the economy has gained momentum," economists at RDQ Economics said in a note to clients.
        Overall industrial production, which measures the output of manufacturers, utilities and mines, rose a seasonally adjusted 1.3% from the prior month, the Fed said. That followed a gain of 0.1% in October, revised up from the earlier reported 0.1% dip.
        Capacity utilization, a measure of slack in the industrial sector, jumped to 80.1% in November from October's revised reading of 79.3%. At the November level, capacity utilization is at its highest since March 2008 and now equal to its average over the past 40 years.
        "This marks a new cycle high in the level of resource usage in this sector, and it could potentially be interpreted by the Fed as further indication that the economy is moving closer to full employment at a more rapid clip than previously thought," said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities.
        Overall industrial output in November was up 5.2% from a year earlier.
        The relative strength of the U.S. economy has pushed up the value of the dollar against the euro, the yen and other currencies, creating a potential headwind for American companies locked in stiff competition with overseas manufacturers. A stronger dollar makes American goods more expensive relative to foreign products.
        "These currency moves could hurt the ability of manufacturers in the United States to grow exports, but the struggling economies themselves do not help either, dampening the demand for international sales," Chad Moutray, chief economist at the National Association of Manufacturers, said in a report last week.
        Tumbling oil prices, meanwhile, may help lower the costs of raw materials and energy for many firms.
        The other main components of industrial production were mixed.
        According to Monday's report, mining output fell 0.1%, a possible reflection of lower prices for oil and other commodities.
        Utility production rose 5.1% last month "as weather that was colder than usual for the month boosted demand for heating," the Fed said.
        Ben Leubsdorf contributed to this article
        Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com
        (END) Dow Jones Newswires

        December 15, 2014 19:03 ET (00:03 GMT)

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