Storm Sandy knocks industrial output in October
By Lucia Mutikani | November 17, 2012 2:49 AM EST
Industrial output unexpectedly fell in October as superstorm Sandy disrupted production, but the underlying tone remained consistent with slowing manufacturing activity.
Industrial production contracted 0.4 percent last month after a 0.2 percent increase in September, the Federal Reserve said on Friday.
The Fed said the storm, which tore through the East Coast at the end of October, is estimated to have reduced the rate of change in output by nearly 1 percentage point. It cut the output of utilities, chemicals, food, transportation equipment, and computers and electronic products, the Fed said.
Economists had expected a 0.2 percent gain in industrial output last month. The storm is estimated have caused $50 billion in damage.
Aside from the storm's impact, the trend in industrial production is biased towards weakness as fears over higher taxes and sharp cuts in government spending deter businesses from ramping up production and capital investment.
Cooling global demand is also crimping output.
The so-called fiscal cliff could drain about $600 billion from the economy early next year unless Congress agrees on an orderly plan to cut rising budget deficits.
"The big thing that stands out are the declines in business equipment, machineries and construction supplies. When you see that kind of weakness, you can't really attribute it to the storm," said Christopher Low, chief economist at FTN Financial in New York.
"It's a pattern of weakness that has happened in the past three months. The most likely explanation is the weakness in capital equipment orders, which could be attributed to caution about the fiscal cliff and its possible impact on the economy."
U.S. stocks were lower on Friday as investors remained skeptical a meeting between President Barack Obama and congressional leaders would make progress on dealing with the fiscal cliff. Treasury debt prices were up slightly.
Last month, utilities output fell 0.1 percent after being flat in September. Production at mines increased 1.5 percent after rising 0.9 percent the prior month.
Excluding the effects of the storm, manufacturing output was little changed from its September level, the Fed said.
The factory operating rate slipped to 75.9 percent in October, the lowest level since November 2011. Capacity utilization at factories is 2.9 percentage points below its long-run average.
"The problem is that we were already seeing a slowing in the sector and so it is difficult to disentangle what is going on. We are poised for a ratcheting down in economic growth," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.
Capacity utilization, a measure of how fully firms are using their resources, fell to 77.8 percent -- the lowest level since November 2011 -- from 78.2 percent in September. That was 2.5 percentage points below its long-run average.
Officials at the Fed tend to look at utilization measures as a signal of how much "slack" remains in the economy -- how far growth has room to run before it becomes inflationary.
(Additional reporting by Richard Leong and Julie Haviv in New York; Editing by Andrea Ricci)
Most Popular Slideshows
- Gennady Golovkin Next Fight Options: Canelo Alvarez, Miguel Cotto Or Julio Cesar Chavez Jr.
- NFL MNF: Pittsburgh Steelers 30, Houston Texans 23 [PHOTOS]
- 2014 MLB World Series Game 1: San Francisco Giants 7, Kansas City Royals 1 [PHOTOS]
- 2014 MLB World Series - Game 2: Kansas City Royals 7, San Francisco Giants 2 [PHOTOS]
Join the Conversation
- Tourre on stand says email in SEC case 'not accurate'
- Syrian authorities blocking access to needy in Homs - Red Cross
- Faith in European Union at low ebb, EU poll says
- Former UBS banker gets 18 months, $1 million fine, for muni bid-rigging scheme
- U.S. judge halts challenges to Detroit's bankruptcy bid
- Boy Stoned To Death For Alleged Rape, Victim Receives Dowry From Militants
- No Mercy: ISIS, Father Stones to Death Daughter for Alleged Adultery
- ASUS Releases A Teaser Indicating The Arrival of New Zenfone and ZenWatch On October 28
- Russia is Creating Underwater Combat Robots to Protect its Arctic Territories
- Three Dual SIM Samsung Galaxy Note 4 Duos Variants Comes To China
- iOS 8 Jailbreak Release Date is Doomed as Team Evad3rs Opts Out, Pangu Hits Snag – Report
- Google Nexus 6 vs. iPhone 5S: 4 Important Things to Consider Before Switching to Android Lollipop