Factory output eclipses pre-recession high

WASHINGTON (AP) – U.S. manufacturing output in November surpassed its pre-recession peak, as auto production kicked into a higher gear.

The Federal Reserve said Monday that factory production rose 1.1 percent last month, up from a 0.4 percent improvement in October. Manufacturing output has risen 4.8 percent over the past 12 months. It’s now above the previous high set just before the downturn began in December 2007.

Total industrial production grew 1.3 percent in November, rising in part as utilities faced additional demand because of colder-than-usual weather. Mining production slid 0.1 percent last month.

The growth points to a U.S. manufacturing base that has been insulated from a turbulent global economy.

“The strengthening in domestic demand is offsetting the effects of the weakening global backdrop and the stronger dollar,” said Paul Dales, a senior U.S. economist at Capital Economics.

Japan has slipped into recession. Tepid growth has trapped much of Europe. China, the world’s industrial behemoth, is trying to tighten credit and reform its opaque financial sector. The rising value of the dollar against other currencies makes U.S. products more expensive abroad, meaning that U.S. manufacturers will likely need to rely on domestic demand for growth.

The U.S. economy has thrived despite the global slowdown.

Strong domestic sales helped boost auto production 5.1 percent last month. Motor vehicles sold in November at an annualized clip of 17.2 million, a 4.6 percent increase from the prior year, according to Autodata Corp. The surge in production snapped three previous months of declining auto output.

Additional gains came from food and wood, plastics and rubber-based products.

That pushed up the rate of factory capacity utilization to 80.1 percent, breaking the 80 percent threshold for the first time since March 2008. This puts manufacturing capacity “much closer to the 82 percent inflationary-threatening level,” noted Jennifer Lee, a senior economist at BMO Capital Markets.

Still, inflation has remained consistently below the Fed’s 2 percent target, dragged down in recent weeks by plunging oil prices. And manufacturing growth has recently begun to exhibit some signs of strain.

For the first time in nearly two years, manufacturing activity in New York state fell in December. The Federal Reserve Bank of New York said Monday that its Empire State Manufacturing index dropped to negative-3.6 in December from 10.2 the previous month. Any figure below zero indicates contraction.

U.S. factory orders declined for a third consecutive month in October, the Commerce Department reported recently. Orders dropped 0.7 percent in October, indicating that factory activity may slow in the coming months. That decrease would have been even more severe, if not for a 21.2 percent jump in military-based orders

The Institute for Supply Management, a trade group of purchasing managers, said that its manufacturing index fell to 58.7 in November, down from 59 in October, which had matched a three-year high reached in August. Any reading above 50 indicates expansion.

Manufacturing activity has continued to increase in the United States, even as it struggling around the rest of the world.

Chinese factory output is barely expanding, according to a survey by the bank HSBC Corp. A leading European manufacturing index fell to 50.1 in November, the lowest in 17 months and on the edge of shrinking. Manufacturing in Brazil contracted in seven of the past eight months.

Manufacturers have added 165,000 jobs so far this year, as the auto industry has helped to both drive and reflect an improving U.S. economy. Greater demand for autos and other products have helped to insulate the U.S. economy from the global slowdown.