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Industrial Production in U.S. Increases for a Fifth Month (1)

Jan. 17 (Bloomberg) -- Industrial production in the U.S. rose for a fifth month in December, capping the strongest quarter since 2010 and indicating manufacturing is helping propel the economy.

Output at factories, mines and utilities climbed 0.3 percent after a revised 1 percent increase in November, figures from the Federal Reserve showed today in Washington. The gain matched the median forecast of economists in a Bloomberg survey. Manufacturing production rose more than projected.

Industrial output rose at a 6.8 percent annual rate in the final three months of last year, the most since the second quarter of 2010. Manufacturing will be a source of strength for the economy as factory floors stay busy filling orders for home- construction materials, appliances and automobiles, while overseas markets expand.

“Pretty clearly there’s been a pickup in manufacturing in the last couple months,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economy in Valhalla, New York, the top-ranked forecaster of production in the past two years, according to data compiled by Bloomberg. “Certainly you have to start with the consumer in the last couple of months and there’s been a pretty strong pace in goods consumption.”

Another report today showed the pace of home construction dropped less than forecast, ending the best year for the industry since 2007. Housing starts fell to a 999,000 million annualized rate in December from a 1.11 million pace that was the highest since November 2007, according to the Commerce Department in Washington.

Stocks Fall

Stocks declined as United Parcel Service Inc. slid and investors weighed earnings from Morgan Stanley to General Electric Co. The Standard & Poor’s 500 Index fell 0.1 percent to 1,843.65 at 9:39 a.m. in New York.

Estimates of the 84 economists surveyed for industrial production ranged from a drop of 0.2 percent to a 0.7 percent advance after a previously reported 1.1 percent gain in November.

Manufacturing, which makes up 75 percent of total production, advanced 0.4 percent in December after a 0.6 percent gain. Economists projected a 0.3 percent increase last month, according to the Bloomberg survey median. Factory output in the fourth quarter increased at a 6.2 percent annualized rate, the strongest since the first three months of 2012.

Factories output of autos, appliances, furniture, home electronics and clothing increased last month.

Utility output dropped 1.4 percent after a 3 percent surge in November. Mining production, which includes oil drilling, increased 0.8 percent.

November Weather

The pullback in utility use followed a surge in November, when temperatures cooled to an average 41.6 degrees Fahrenheit (5.3 degrees Celsius), compared with 53.6 degrees in October, according to the National Oceanic and Atmospheric Administration. Temperature-related energy demand in the contiguous U.S. was 30 percent above average, the agency said. In December it was 15 percent above average.

Colder weather had little effect on auto production even as sales eased. The production of motor vehicles and parts increased 1.6 percent after rising 3.6 percent in November, today’s report showed. Auto assemblies rose last month to an 11.8 million annual rate, the fastest since March 2006, from an 11.53 million pace. Excluding autos and parts, manufacturing rose 0.4 percent for a second month, indicating the pickup was broad-based.

Auto Purchases

Motor vehicle purchases fell to a 15.3 million annualized rate from a 16.3 million pace in November, according to data from Ward’s Automotive Group. Inclement weather helped explain the slowdown.

“Weather certainly had an impact as the storms blew through the Midwest which is typically a stronghold for us and then off into the Northeast,” Kurt McNeil, vice president of sales at General Motors Co., said on a Jan. 3 conference call. Still, “things continue to fall into place from an economic standpoint, especially in the last month or two.

“The biggest reason why people are feeling better about the economy and returning to showrooms is the progress that has been made on the jobs front,” he said. “That’s the key to releasing even more pent-up demand in 2014.”

Automakers completed their best sales year since 2007 and are upbeat about the year ahead. Dearborn, Michigan-based Ford Motor Co., the second-largest U.S. automaker, plans to add 5,000 jobs in the U.S. as it introduces 16 new vehicles in North America this year.

Navistar International

Companies such as Lisle, Illinois-based Navistar International Corp., which makes trucks and buses as well as vehicle parts, are also upbeat about the outlook for auto production and construction even as some parts of the expansion remain sluggish.

“The industry is still experiencing both headwinds and tailwinds,” Chief Operating Officer Jack Allen said on a Dec. 20 earnings call. “Some sectors of the economy, housing and automotive, for example, are showing improvement.”

Older cars and trucks are a sign of pent-up demand in the market, Allen said.

“We continue to believe there is a fundamental need for replacement vehicles due to vehicle age, especially given the economics associated with older vehicles that are less fuel efficient and more costly to maintain,” he said on the call.

Raising Forecasts

Economists are seeing brighter prospects ahead, raising projections this month for growth in 2014. The world’s largest economy will expand at a 2.8 percent rate this year, according to the median estimate of 79 economists in a Bloomberg survey conducted Jan. 10-15. That compares with a 2.6 percent reading in a Dec. 6-11 Bloomberg poll.

Today’s Fed report also showed capacity utilization, which measures the amount of a factory that is in use, increased to 79.2 percent in December from 79.1 percent the prior month. Capacity at factories rose to 77.2 percent, the highest since March 2008.

Recent regional reports indicate manufacturing picked up at the start of this year. The Federal Reserve Bank of New York’s general economic index jumped to 12.5 from 2.2 the prior month as orders and capital spending increased. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut.

The Federal Reserve Bank of Philadelphia’s factory index increased to a three-month high in January as sales and employment improved, a report showed yesterday.

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