Factory production increases less than forecast

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WASHINGTON — Factory production rose less than forecast in September, indicating a pause in manufacturing leading into the budget battle that partially closed the federal government.

Output at factories rose 0.1 percent after a revised 0.5 percent gain in August that was smaller than initially estimated, figures from the Federal Reserve showed Monday in Washington. The median forecast of economists in a Bloomberg survey called for a 0.3 percent September gain. Total industrial production, which also includes output by mines and utilities, advanced 0.6 percent as higher temperatures drove up electricity use.

The figures showed declines in production of such non- durable goods as chemicals and textiles, while output of autos and business equipment rose. An acceleration in manufacturing, which accounts for about 12 percent of the economy, depends on whether corporate confidence improves in wake of the partial government shutdown that lasted for half of October.

"The economy is in a shutdown-related soft patch in the fourth quarter," said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass., who correctly predicted the gain in industrial production. "There is a lot of underlying strength in the U.S. economy, it's just that these episodes continue to undermine it."

Another report from the National Association of Realtors showed pending sales of previously owned homes slumped 5.6 percent in September, the fourth straight decrease and the biggest drop in more than three years.

The median forecast in a Bloomberg survey of 85 economists called for a 0.4 percent advance in September industrial production. Estimates ranged from a drop of 0.3 percent to an increase of 0.8 percent. Manufacturing, which accounts for about 75 percent of total production, was previously reported as rising 0.7 percent in August.

Factory production in China has shown signs of picking up. Industrial output in September climbed 10.2 percent from the same month last year, according to Oct. 18 figures from the Beijing-based National Bureau of Statistics. In June, the year- over-year increase was 8.9 percent.

In the euro area, the pace of manufacturing growth has been more limited. An index of factory output in the region increased to 51.3 in October from 51.1 a month earlier and 51.4 in August, according to London-based Markit Economics.

Monday's Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, climbed to 78.3 percent from 77.9 percent the prior month.

Mining production, which includes oil drilling, rose 0.2 percent after a 0.6 percent gain. Utility output jumped 4.4 percent, the most since March, after falling for five straight months.

The average temperature last month was 67.3 degrees Fahrenheit (19.6 Celsius), making it the sixth-warmest September on record, according to the National Oceanic and Atmospheric Administration. According to the agency's index on residential energy demand, September was 9 percent above average.

Factory production of non-durable goods declined 0.3 percent in September, the third straight decrease. Output of textiles dropped 0.7 percent, while production of chemicals fell 0.6 percent.

Dow Chemical Co., the largest U.S. chemical maker by revenue, this month reported profit that trailed analysts' estimates amid higher costs and lower sales in the unit that makes epoxy, used in plywood and can linings.

Production of motor vehicles and parts climbed 2 percent after a rising 5.2 percent a month earlier, Monday's report showed. Automaker assemblies rose to an 11.55 million annualized rate in September, the most since June 2006. Manufacturing excluding autos and parts was unchanged following a 0.2 percent gain a month earlier.

Demand for motor vehicles has been a bright spot for manufacturers, with cars and light trucks selling at a 15.2 million annualized rate in September after climbing in August at the fastest pace since 2007, figures from Ward's Automotive Group showed.

Ford earned a $2.3 billion profit in North America in the third quarter and raised its forecasts for pretax profit and operating margin for the full year. The Dearborn, Mich.-based company said last week that its automotive sales rose 12 percent to $33.9 billion. It also earned a rare profit on overseas operations on rising demand for Focus compact cars in China and B-Max vans in Europe.

Eaton Corp., which makes electrical equipment for buildings and hydraulics for machinery, is seeing steady, albeit slow, improvement in the U.S. economy, Chief Executive Officer Sandy Cutler said during an Oct. 25 conference call. The U.S. accounted for about half of Eaton's revenue in 2012.

"As we see some of the activity we're seeing now, and I think the whole backdrop to this is this is a gradually improving economy," Cutler said. "It's not one that's rocketing back here in the U.S."

Cutler forecast an increase in demand in its markets of as much as 4 percent next year, spurred by economic recovery in Europe.

"The biggest turnaround in a region is likely be Europe," Cutler said in an Oct. 25 telephone interview. "Whether you think growth's a half-point positive or a point positive, it's sure going to be better than negative 1 percent for a couple of years in a row."

A recovery in the company's orders in the third quarter has marked a "change in momentum," Cutler said. Eaton, which is based in Dublin and operates from Cleveland, is forecasting zero growth for its markets this year, he said.

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