Factory production rises in October

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NEW YORK (CNNMoney.com) -- Industrial production grew in October, after September produced the worst dropoff in factory output in 62 years, according to a report released Monday by the Federal Reserve.

Industrial production grew a seasonally adjusted 1.3% from the previous month, surpassing the economists' consensus estimate of a 0.2% increase, according to Briefing.com. It was the largest monthly increase in factory output since October 1999.

Factory output in October only increased because production in September fell by a revised 3.7%. The Fed said September's poor output was due mainly to Hurricanes Gustav and Ike's disastrous effects on the Gulf Coast industry as well as a Boeing workers' strike that month. September's was the worst month-to-month decline since February 1946.

"We're getting a little bounce back from the hurricane, but this is a kind of one-off rise," said John Silvia, chief economist at Wachovia. "The production numbers still show we're in recession territory."

Though last month's industrial production rose from the previous month, it fell a substantial 4.1% from a year ago. Factory output in September fell 5.6% from September 2007. It was the first time that industrial production fell by that much in two straight months since the 2001 recession.

Industrial production is one of the four factors that the National Bureau of Economic Research considers to determine if the nation's economy has fallen into a recession. The other three factors are employment, personal income and retail and wholesale sales of manufactured goods.

Industrial production has been volatile over the past year and a-half, registering up-and-down growth since January 2007, but it has only recently shown the kind of huge drop-off that is typical in a recession. Even with October's rise, production has fallen 3.7% since July. Production fell for 12 straight months during the 2001 recession.

Manufacturing output increased 0.6% in October, and the factory operating rate rose slightly to 73.8%. But factory operations are still nearly six percentage points below the average rate from the 35-year period from 1972-2007.

Auto manufacturing declined 3.9%, sinking to the lowest rate of automotive production since March 1991. Vehicle production has fallen 18.3% from October 2007.

"There will always be an auto industry, but federal intervention will be needed to stabilize the existing status quo," Silvia said. "Without intervention, you'd see a very different GM or Ford."

Congress this week will consider whether to bail out the troubled U.S. auto industry that has seen sales and production fall off a cliff amid higher fuel costs and sinking consumer sentiment.

Production of durable consumer goods fell 2.1% last month, dragged down by lower output of appliances and electronics equipment.

Capacity utilization for all industries, a measure that tracks the percentage of factories in use, posted a seasonally adjusted increase of 0.9 percentage point to 76.4%. Economists had expected a increase to 76.5%.

In other troubling news, the New York Fed's regional manufacturing survey slipped 0.8 point to a reading of minus 25.4 in November. The index was dragged down by rising prices and unemployment.