Factory Output in US Rises Most in Six Months: Economy

Bloomberg News

Factory production in the U.S. rose in February by the most in six months, indicating the industry started to recover from severe winter weather.

The 0.8 percent gain at manufacturers followed a revised 0.9 percent slump in the prior month that was the biggest since May 2009, figures from the Federal Reserve in Washington showed today. The median forecast called for a 0.3 percent advance. Total industrial production rose 0.6 percent, more than projected.

The advance shows output began to pick up after snowstorms in the eastern U.S. prevented some factories from receiving parts and materials in January. Stronger demand from consumers and companies would help bolster manufacturers, which are faced with a build-up in inventories.

'Once the weather effects have rolled off, underlying demand is better than expected,' said Gennadiy Goldberg, a strategist at TD Securities USA LLC in New York, whose forecast for a 0.5 percent increase in factory output was among the highest in the Bloomberg survey. 'The market got a little too pessimistic.'

Another report today showed factories in the New York region kept expanding in March. The Federal Reserve Bank of New York's general economic index rose to 5.6 this month from 4.5 in February as new orders picked up.

Estimates of 84 economists in the Bloomberg survey for February industrial production ranged from a decline of 0.3 percent to a gain of 0.5 percent. Projections for factory output ranged from a 0.2 percent drop to a 0.5 percent increase.

Stocks advanced, after the Standard & Poor's 500 Index fell to a three-week low, as the production figures boosted optimism on the economy. The S&P 500 increased 0.7 percent to 1,853.15 at 9:35 a.m. in New York.

Mining, Utilities

Mining production, which includes oil drilling, rose 0.3 percent in February after a 0.5 percent gain. Utility output fell 0.2 percent. January's 3.8 percent increase was the biggest in almost a year as storms and frigid temperatures boosted demand.

Motor vehicle output rose 4.8 percent last month after a 5.2 percent drop at the start of the year. Auto assemblies increased in February to an 11.4 million annual pace from 10.6 million rate a month earlier. Factory output excluding vehicles and parts rose 0.5 percent last month.

Automakers are turning to discounts to help move inventory as dealerships dig out from heavy snow. At , February sales fell 6 percent from the same period a year ago. The company had to delay approximately 10,000 fleet orders due to parts disruptions, said John Felice, Ford's vice president of U.S. marketing.

Dealerships that weren't affected by snow reported robust demand, Felice said on a March 3 revenue call.

'Good Shape'

'It has been an interesting start to the year with weather,' Felice said. 'We feel that as we head into March, we'll be in very good shape.'

Production of business equipment jumped 1.3 percent, the most in a year, after a 0.3 percent advance in January, today's report showed.

Stronger demand would help companies pare inventories that have been building, in part because of winter weather. A report from the Commerce Department on March 13 showed stockpiles rose 0.4 percent in January after a 0.5 percent gain a month earlier. The inventory-to-sales ratio climbed to 1.32 months in February, the highest level since October 2009.

Today's Fed report also showed that capacity utilization, which measures the amount of a factory that is in use, increased to 78.8 percent in February from 78.5 percent the prior month. Capacity at factories rose to 76.4 percent from 75.9 percent.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at Ctorres2@bloomberg.net Vince Golle

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