Manufacturing growth up 1.3%

U.S. surge most in 16 years

In this Tuesday, Nov. 11, 2014 photo, Arik Smith operates a stacking machine at EaglePicher Industries in Joplin, Mo. The Federal Reserve releases industrial production figures for November on Monday, Dec. 15, 2014. (AP Photo/The Joplin Globe, Roger Nomer)
In this Tuesday, Nov. 11, 2014 photo, Arik Smith operates a stacking machine at EaglePicher Industries in Joplin, Mo. The Federal Reserve releases industrial production figures for November on Monday, Dec. 15, 2014. (AP Photo/The Joplin Globe, Roger Nomer)

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, the Federal Reserve reported Monday. 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 increase spending, shielding American factories from cooling demand in Europe and a rising currency that makes goods more expensive to foreign customers.

"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."

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 than 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 natural 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, Monday'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.

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 the 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 and has slipped into recession.

The rising value of the dollar against other currencies makes U.S. products more expensive abroad, meaning that U.S. manufacturers will likely need to rely on domestic demand for growth.

"The strengthening in domestic demand is offsetting the effects of the weakening global backdrop and the stronger dollar," said Paul Dales, a senior U.S. economist at Capital Economics.

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, Ill.-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 Monday's report.

In a separate report, the Federal Reserve Bank of New York said Monday that its Empire State Manufacturing index dropped to -3.6 in December from 10.2 the previous month. Any figure below zero indicates contraction. The index, a measure of manufacturing activity in New York state, had not fallen in nearly two years.

The drop may be a sign that the state's factories are suffering from slower overseas demand as Europe's economy is barely expanding. The slowdown comes after a rapid run-up in business in the fall. The index reached a five-year high of 27.5 in September.

Information for this article was contributed by Shobhana Chandra and Chris Middleton of Bloomberg News and Josh Boak and Christopher S. Rugaber of The Associated Press.

A Section on 12/16/2014

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