U.S. Factories Operate at Fastest Pace in 2 Years

U.S. manufacturers churned out a swelling volume of new computers and other consumer goods in October, the Federal Reserve Board said Monday, as industries ran at their fastest pace in more than 2 1/2 years.

Total output by the nation’s mines, factories and utilities rose 0.5% last month after revised increases of 0.5% in September and 0.6% in August.

The capacity-use rate, which measures how near businesses are to their maximum operating capacity, climbed to 84.3% last month from 84.2% a month earlier--the steepest since an 84.3% reading in March 1995.

Analysts said the figures showed robust industrial activity, though its durability depends upon consumer spending that has shown some signs of waning. The Commerce Department said Friday that retail sales fell for a second straight month in October.

Despite the high capacity-use rate--a rate of 85% or more often is associated with production bottlenecks and inflation--analysts noted that some key sectors such as auto making and chemicals were below past cyclical peaks.

Motor vehicles and parts makers ran at 75.9% of capacity in October, down from 76.1% in September, as total motor vehicle assemblies remained steady at a rate of 12.6 million a year.

“The manufacturing sector entered the fourth quarter with considerable momentum, suggesting that economic activity remains strong,” said Joel Naroff, a Philadelphia-based economist for First Union Corp. of Charlotte, N.C.

The Fed, the nation’s central bank, similarly commented on the firm tone of industrial activity.

Robert Dederick, economic consultant to Northern Trust Co. in Chicago, said the industrial production figures were probably brisk enough to make the Fed uneasy about pressure on prices when employment was already booming and wages were rising.

“If it weren’t for the Asian contagion, one would be thinking of tightening monetary policy, but that has stayed their hand,” Dederick said. Stiffer U.S. interest rates to curbing domestic inflation pressures could complicate efforts in Asia to calm their currency and financial markets.

He added that the two-month hesitation in September and October retail sales, if it continues, may put the brakes on industrial output in coming months if it starts to pile up unsold on warehouse and store shelves.

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Industrial Production

Index: 1987 - 100; seasonally adjusted. Oct: 122.7