THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Increase in factory production lifts hopes

The Labor Department said the Producer Price Index rose 0.4 percent last month, the same increase as in September and August. The Labor Department said the Producer Price Index rose 0.4 percent last month, the same increase as in September and August. (Paul Sakuma/ Associated Press)
By Christopher S. Rugaber and Daniel Wagner
Associated Press / November 17, 2010

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

Your article has been sent.

Text size +

WASHINGTON — After leading the economy out of recession last year and then flagging over the summer, manufacturers might be getting a second wind.

Factories boosted their output in October by the most since July, the Federal Reserve said yesterday. Its report follows several other positive readings on the economy, including data released Monday that showed retail sales rose in October by the most in seven months.

“After a pretty disappointing summer, the economic recovery might be picking up,’’ said Paul Ashworth, an economist at Capital Economics.

And a report yesterday on wholesale prices showed that the rising production and sales aren’t increasing prices enough to fan inflation fears. That gives the Federal Reserve leeway to carry out its $600 billion bond purchase plan to try to lower interest rates and spur growth.

The Fed’s bond-purchase plan has sparked criticism from some economists who say it risks triggering runaway inflation later on. But several analysts said yesterday’s tame wholesale price report provides support for the Fed’s move.

“The incoming data suggests, at least for now, that the Fed was justified in its decision,’’ said Diane Swonk, chief economist at Mesirow Financial.

Manufacturers boosted their production by 0.5 percent in October, the Fed said.

The gain was led by increased output of long-lasting goods such as autos, appliances, and business equipment. Overall, industrial production was unchanged last month — but only because of a drop in utilities’ output as unusually warm weather reduced demand for heating.

Economists welcomed the increase in factory production as a sign that business and consumer spending is growing at a sustainable, if still modest, pace.

Wholesale prices rose in October, the fourth straight monthly increase. The gain was due mainly to higher gas costs, and there was no sign of significant inflation as the costs of food, cars, and computers all fell. The Producer Price Index rose 0.4 percent, the Labor Department said. The index has risen 4.3 percent over the past 12 months.

But excluding the volatile food and energy categories, the core index fell by 0.6 percent. That was the sharpest drop in more than four years. The decline was driven by falling prices for new cars and trucks.

The report measures price pressures before they reach the consumer. It showed that companies have little ability to pass on the higher costs they’re paying for grains and other commodities. Food prices fell slightly, confounding expectations that they’d rise because of higher prices for corn, soybeans, and sugar.

Excluding the drop in auto prices, the core index rose by 0.2 percent, economists said. The core index has risen just 1.5 percent over the past 12 months.

With prices largely in check, the Fed said earlier this month that it will buy $600 billion in government bonds over the next eight months to try to lower longer-term interest rates.

The idea is that lower rates could lift stock prices as investors shift money out of low-yielding bonds and into stocks. Higher stock prices would make people feel wealthier and more willing to spend.

And if business leaders become more confident as their personal wealth rises, they’re more likely to hire and expand. Once they do, the economy would strengthen.

When it announced the program, the Fed said “measures of underlying inflation are somewhat low’’ compared to levels it considers consistent with price stability.