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Production Index Up 0.4%; Gain Is Biggest in 3 Months

Associated Press

U.S. industrial production rose 0.4% in October, the biggest increase in three months, despite a decline in activity in the nation’s oil fields, the government said Tuesday.

The Federal Reserve Board said its industrial production index last month rose to a seasonally adjusted 139.2% of its 1977 base, reflecting increases in production of business equipment and automobiles.

“We’re not talking anything dramatic here, but it’s a comfortable gain,” said Robert G. Dederick, an economist with Northern Trust Co. in Chicago.

Noting that retail sales for the month also increased, Dederick said, “We’re seeing strength in both the production side (of the economy) and the demand side, which suggests that strength on the production side can continue.”

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The October gain in production at factories, mines and utilities was in line with economists’ expectations. It followed smaller increases of 0.2% in September, revised up from an earlier estimate of no change, and 0.3% in August. Production jumped 1.1% in July.

Inflation Concerns Rekindled

The index has not declined since September, 1987, a reflection of the strength in the manufacturing sector. A drop in the value of the dollar has triggered a surge in sales of U.S. goods overseas this year and a related boom in spending to expand and modernize factories.

However, economists have become worried that manufacturing may be growing too strongly, straining production capacity and leading to inflation. The relatively weak industrial production of August and September had calmed those fears somewhat, but signs of a rebound in October have rekindled the concern.

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“What is needed is really rather subdued growth . . . and that’s not what we’re getting,” Dederick said.

Production in the manufacturing sector rose 0.5% in October, following a 0.4% gain in September. The Federal Reserve said automobiles were assembled at an annual rate of 7.6 million units, up from 7.4 million units a month earlier and 7.0 million units in August.

Production of business equipment jumped 0.8% for the second month in a row and stood 9.4% higher than a year ago. Within that category, production of manufacturing equipment rose 1.8% last month and 1.9% in September.

Output at mines, which includes oil and gas drilling, fell 0.9% in October, the third consecutive decline.

Utilities Production Up

Production at utilities rose 0.4% last month, following a large drop of 3.8% in September, which was attributed to the decline in electricity use for air conditioners following the summer heat wave.


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