Factory Utilization Increases to Highest Level in Nine Years

Factories, mines and utilities increased production a solid 0.5% in November, while use of industrial capacity rose to the highest level in nine years, the Federal Reserve Board said today.

The increases in industrial production and capacity utilization, which signal continued strength in the economy, had been expected after the report earlier this month of a large increase in the number of new jobs created in November.

While the figure matched forecasts, it had a negative impact on financial markets, adding to speculation that a robust economy will prompt the Federal Reserve to tighten credit in a bid to counter inflation pressures.

Industrial utilization rose to 84.2% of capacity last month, the highest since November 1979, when capacity use was 84.3%, the Fed said. The rise followed rates of 84.0% in October and 83.7% in September.

Capacity use at factories rose to 84.5% in November from 84.3% in October.

The rise in industrial production followed an identical 0.5% increase in October and a 0.1% September gain. It brought production to a level of 5.1% above a year ago.

Output of business equipment, some consumer goods and construction supplies led the advance, while automobile production and output of home goods such as appliances declined.

Manufacturing output increased 0.5% as most major industries posted gains, although production from petroleum refining fell. Mining output rose 0.6% and production by utilities increased 0.4%.

In a separate report, the Commerce Department said inventories held by manufacturers, wholesalers and retailers rose a slim 0.2% in October to a seasonally adjusted $751.44 billion, after a 0.9% September increase.

Most of the increase, which was not considered significant, was in manufacturers’ inventories. Stocks held by retailers declined in October.

Total business sales during October outpaced inventory growth, rising 1.2% to a seasonally adjusted $501.45 billion.

On Tuesday the Commerce Department reported that retail sales rose 1.1% in November, compared with analysts’ forecasts of a mere 0.5% gain.