US factory output declined sharply in November

[December 16, 2011]  WASHINGTON (AP) -- U.S. manufacturing output fell in November for the first time in seven months.

The decline was largely because factories made fewer autos. But production of home electronics, appliances and business equipment also dropped.

Economists took the industrial production report from the Federal Reserve with a little caution. While most agreed it was not good news, many noted that the 0.2 percent decline in output at the nation's factories, mines and utilities followed steady gains over the previous six months.

And more recent data from regional Fed banks suggests manufacturing grew sharply in both the Northeast and Philadelphia region in December.

"One month is not a trend," said Dan Greenhaus, chief global strategist with BTIG LLC.

Factory output, the biggest component of industrial production, decreased 0.4 percent. The decline was mainly because of steep drop in the production of motor vehicles and parts. When stripping out auto production, which can be volatile from month to month, factory output fell just 0.2 percent.

Automakers reported strong sales for November. Chrysler, Ford, Nissan and Hyundai showed double-digit gains. The industry's growth has been a major contributor to recent gains in factory output.

"As long as auto demand is strengthening, the prospects for auto production remain good, and this month's slump should prove an aberration," said TD Economics economist Alistair Bentley in a research note.

Some economists warn that factory conditions could worsen, especially if Europe's debt crisis hastens a recession in that region, growth slows further in Asia and businesses continue to cut back on investment plans.

"That's pretty much the worst combination you could hope for as far as manufacturers are concerned," Paul Ashworth, chief U.S. economist with Capital Economics.

Still, other reports have been more encouraging. A separate survey from the Federal Reserve Bank of New York showed that factories in that region took more new orders and shipped more goods in December, making business conditions there the best since May.

And the Federal Reserve Bank of Philadelphia said factory conditions in that area grew for a third straight month after they had contracted twice over the summer.

Manufacturing was an early bright spot in the economic recovery, helping the nation emerge from the deep recession that ended officially in June 2009. Factories helped lift overall growth in 2009 and 2010.

They showed smaller gains earlier this year because of the natural disasters in Japan and higher gas prices, which reduced consumers' buying power. The economy barely grew in the first six months of the year.

Factory output strengthened over the summer. And output of autos, auto parts and refined energy products soared.

The Institute for Supply Management said its manufacturing index rose to 52.7 in November from 50.8 in October, suggesting modest growth for manufacturers. Any reading above 50 indicates expansion. The ISM also said that new orders and production rose to seven-month highs. And export orders increased, despite the turmoil in Europe.

Other signals also have been more positive. Retail sales increased in November for the sixth straight month, showing that consumers continue to spend despite stagnant wages and high unemployment. Consumer demand drives much of the economy, including a large part of the manufacturing sector.

A shorter factory work week may have slowed manufacturing growth last month, economists say.

The total hours worked by manufacturing workers declined 0.5 percent last month, according to the government's November jobs report.

[Associated Press; By DANIEL WAGNER]

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