NEW YORK (CNN/Money) - Production from the nation's factories, mines and utilities edged up in December, the Federal Reserve said Friday, in a report that fell short of Wall Street expectations.
The report showed industrial production rose 0.1 percent in December after rising a revised 1 percent in November. Economists, on average, expected production to rise 0.5 percent, according to Briefing.com.
Among the three components of the report, factory output was the strongest, pointing to a continuing recovery in that sector following a long, brutal slump.
"This is the fourth consecutive monthly increase in manufacturing output and confirms that a manufacturing cyclical rebound is finally underway," said David Huether, chief economist at the National Association of Manufacturers.
Capacity utilization, the percentage of production capacity factories used in the month, was 75.8 percent, equaling the revised 75.8 percent in November. Economists expected a capacity utilization rate of 76 percent, according to Briefing.com.
In the Fed's report, factory output rose 0.3 percent in December, compared with a revised 1 percent gain in November. Production of business equipment shrank 0.1 percent, following November's huge jump of 1.9 percent. Consumer goods production also retreated, by 0.2 percent, following a gain of 0.8 percent in November.
Still, Huether of the NAM pointed out that factory output rose at an annualized pace of 6.6 percent in the fourth quarter, double the rate of growth in the third quarter and the fastest increase in four years.
Earlier this week, the NAM said it expected manufacturing output to grow 6 percent in 2004, compared with 1.4-percent growth in 2003.
At odds with regional reports
Certainly, Friday's report seemed somewhat inconsistent with the results of recent national and regional surveys of manufacturing activity. The Institute for Supply Management's closely watched index hit its highest level in 20 years in December, while surveys from the New York and Philadelphia Fed, along with the Chicago Purchasing Managers Index, have also been robust.
Some economists wonder if those surveys aren't as reliable as the hard numbers coming from the Commerce Department and the Fed, which have shown a decent, but not neck-breaking, pace of factory activity at the end of 2003.
"Some economists give a lot of weight to these surveys, but my feeling is that a survey's only good until the real data come out," said Ethan Harris, chief economist at Lehman Brothers. "The surveys are exaggerating the strength of the manufacturing sector."
Also in Friday's report, mining output was flat, compared with a gain of 0.6 percent in November, while production at utilities fell 1.4 percent, following a gain of 1.4 percent in November.
At 75.8 percent, the rate of capacity utilization is still 5.5 percentage points below its 1972-2002 average. With factory equipment sitting idle, and with millions of Americans still unemployed, the Fed has had little incentive to raise interest rates.
In December, the Fed left its key overnight lending rate at its lowest level in 40 years, indicating that inflation was still a distant threat to the economy, despite the third quarter's blistering economic growth rate, higher commodity prices and other signs of potential inflation. Fed policy makers meet again later this month.
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