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Industrial Production Up; October’s PPI Increase Fueled by Gas Prices

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Factories chugged away in October, recording their biggest increase in three months, and producer prices were up as well, thanks to rising gas prices.

Manufacturing was up by 0.5%, coming on the heels of a revised September increase of 0.1%, in figures released Tuesday. Originally September had been reported as a drop of 0.2%. Overall, however, production was unchanged; unseasonably warm weather cut demand for heating, and utility output dropped by 3.4%.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, pointed out in a statement that the consensus forecast was an increase of 0.3%. Capacity use, also unchanged at 74.9%, came in under consensus as well; 74.8% had been expected.

About the drop in utility output, Shepherdson said, “[W]e expected a decline but not that big. The key implication,” he added, “is that real consumers' spending on energy dropped sharply last month, probably by enough to subtract a tenth from the headline consumption number.” Regarding manufacturing output, however, he was positive: “[it] rose a healthy 0.5%, the best performance since July.”

Producer prices rose 0.4% in October, according to a report released by the Bureau of Labor Statistics on Tuesday; that’s the same as September and August, and the fourth increase in four months. Much of that increase was due to prices of finished energy goods, which rose 3.7%.

Shepherdson explained that the rise was due to a 9.8% rise in gas prices, “but the big story is the 3.0% plunge in car prices and the 4.3% drop in light truck prices, which depressed the core.” Such a large drop in car prices hasn’t been seen since July 2006, he says, “when the core PPI last fell by 0.6%. So now we know why auto sales were so strong last month; the manufacturers were giving them away.”

Even though there was such a drop in auto prices, auto output rose—as did non-auto. Richardson was pleased: “With the ISM survey reporting renewed strength in orders we think output will continue to rise at a decent pace. Within the October data, the strongest manufacturing sector was business equipment, up 1.3%; [this was] very welcome.”


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