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 Production at the nation's factories advanced 0.6 percent last
month, building on October's 0.5 percent gain, the Federal Reserve
said on Monday.
That added to solid reports on retail sales and employment that have
painted an upbeat picture of the economy and strengthened the case
for the Federal Reserve to start reducing the pace of its monthly
bond purchases.
"The outlook for 2014 is going to be bright. The economy has reached
escape velocity and, with numbers like these, the Fed better start
recalibrating," said Chris Rupkey, chief financial economist at Bank
of Tokyo-Mitsubishi UFJ in New York.
Fed officials meet on Tuesday and Wednesday to assess the economy
and deliberate on monetary policy. Some economists expect it to
announce a reduction in its $85 billion monthly bond buying program,
although more believe it will wait until January or March before
dialing back its purchases.
Manufacturing is pushing ahead after a lull early in the year, and
two other reports on Monday suggested it continued to make strides
in December. The sector is benefiting from a firming domestic
housing market and an improving global economy.
The amount of factory capacity in use jumped to a near six-year high
of 76.8 percent last month.
While a 3.4 percent rebound in auto production accounted for a large
portion of the increase, there also were gains in the output of
fabricated metals, textiles, furniture and electrical equipment and
appliances.
There were, however, modest declines in the output of computer and
electronic products, machinery, primary metals and transportation
equipment.
The gains in manufacturing combined with a jump in mining and
utilities output to lift industrial production by 1.1 percent. The
increase was the largest since last November, and it pushed
industrial output above its pre-recession peak.
"The broad-based gains in output across the various sectors provide
a very encouraging narrative on the overall tone of domestic
economic activity," said Millan Mulraine, senior economist at TD
Securities in New York.
INVENTORY LIQUIDATION
Manufacturing continued to expand in December, though at a slightly
slower pace. Financial data firm Markit said its preliminary U.S.
Manufacturing Purchasing Managers Index dipped to 54.4 from a
10-month high of 54.7 in November. A reading above 50 signals
expansion in economic activity.
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In a separate report, the New York Fed said its "Empire State"
general business conditions index edged back into positive territory
at 0.98 from minus 2.21 in November. A reading above zero indicates
expansion.
The gauge of New York state factory activity, which fell short of
economists' expectations for a reading of 4.75, reflected a sharp
decline in inventories, a good sign for future production. Other
details, including new orders and unfilled orders were weak.
Economists, however, cautioned against reading too much into the two
reports saying they were poor predictors of national factory
activity.
"The (Empire State) index suggests a modest improvement in
manufacturing conditions but one that resulted in a massive
liquidation of inventory," said John Ryding, chief economist at RDQ
Economics in New York.
"It is difficult to take this series seriously given its volatility
but if inventories were drawn down sharply, this is a constructive
signal for manufacturing conditions going forward."
A cold snap last month boosted the nation's utilities output, which
increased 3.9 percent after falling 0.3 percent in October.
Mining production rose 1.7 percent as oil and gas rigs in the Gulf
of Mexico, which were temporarily shut in October because of
Tropical Storm Karen, reopened. Mining output had dropped 1.5
percent in October.
Last month, the amount of industrial capacity in use increased 0.8
percentage point to 79 percent, the highest since June 2008. Still,
it remained 1.2 percentage points below its long-run average.
(Reporting by Lucia Mutikani; additional
reporting by Richard Leong and Rodrigo Campos in New York; editing
by Andrea Ricci)
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