Factories See Gains in Output

Factories See Gains in Output

Industrial production increased in December, signaling that economic growth continued in the final month of the year.

The Federal Reserve said Friday that industrial production—the output of U.S. factories, utilities and mines—rose 0.8% last month from November. Much of that gain was due to a weather-related 4.3% jump in utility output. But a 0.4% increase in manufacturing output suggested the economy is on a good footing, said Barclays Capital economist Dean Maki.

“Manufacturing production is growing at a solid, but not spectacular, pace,” Mr. Maki said. That, he added, is consistent with an economic recovery that has transitioned beyond its early stages, where growth is driven by businesses rebuilding depleted inventories, to one where growth is due to increased demand from consumers.

The Fed report Friday showed most sectors posted output gains last month, though there were patches of weakness in the auto and construction sectors. Production of motor vehicles and parts slipped 0.2% in December following a 5.3% drop the previous month, while construction activity declined 0.8% after registering a 1.6% gain in November. Year-over-year, industrial production is up 5.9%.

Capacity utilization—the share of production capacity that is being used—climbed to 76.0% from 75.4% the previous month. Still, with operating rates well below the 1972-2009 average of 80.6%, companies’ scope for raising prices may be limited.

Separately, the Commerce Department reported that U.S. business inventories increased 0.2% in November from October to $1.422 trillion. But total business sales increased by more, rising 1.2% to $1.33 trillion.

That suggests that businesses were to some extent surprised by the strength of sales in November, said Mr. Maki. As a result, they may need to lift production in order to prevent inventories from getting so lean that they risk not having the goods customers want on hand.

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