US industrial output rises but factories stay weak

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By MARTIN CRUTSINGER, Associated Press

WASHINGTON (AP) — U.S. industrial production increased only modestly in September, held back by weak growth in factory output.

The Federal Reserve said Tuesday that output at factories, mines and utilities rose 0.4 percent in September. That followed a 1.4 percent decline in August, which partly reflected precautionary shutdowns before Hurricane Isaac hit the Gulf Coast.

Factory output, the most important component of industrial production, edged up only 0.2 percent in September. And for the July-September quarter, factory production fell at an annual rate of 0.9 percent. That was the first quarterly decline since the spring of 2009, when the country was still in recession.

Mining output, which includes oil and gas drilling, rose 0.9 percent in September as companies resumed oil production in the Gulf of Mexico. Utility output increased 1.5 percent.

Manufacturing, which helped pulled the economy out of the Great Recession, has slumped since the spring. Europe's debt crisis and slower growth in China and other emerging markets have hurt demand for American exports.

Many companies have also held back on purchases of equipment and machinery. They waiting to see if Congress can reach a deal before the end of the year to avert sharp tax increases and spending cuts.

The September growth in factory output was an encouraging sign that manufacturing may be rebounding. A separate survey from the Institute for Supply Management also showed manufacturing activity expanded for the first time since May, buoyed by new orders and hiring.

Still, Paul Ashworth, chief U.S. economist at Capital Economics, said factories will likely struggle over the next year because of the global slowdown.

September's output was "not as bad as we had feared, but manufacturing will remain one of the economy's weakest performing sectors," Ashworth said in a note to clients.

A batch of recent data suggests consumers could give factory output a lift in the coming months.

Consumer sentiment rose to a five-year high in October, according to a survey by the University of Michigan. And Americans stepping up their spending at retail businesses in September for the second straight month, buying more cars and iPhones.

Peter Newland, an economist at Barclays, said the increase in consumer spending should translate into more factory orders and stronger production in the coming months.

The economy remains the top issues for voters with just three weeks left before Election Day. It will be front and center Tuesday night when President Barack Obama and GOP challenger Mitt Romney meet at New York's Hofstra University for the second of three debates.

The unemployment rate fell to 7.8 percent last month, the first time it has been below 8 percent since January 2009 — Obama's first month in office. And employers added an average of 146,000 jobs per month in the July-September quarter — double the average number created during the April-June quarter.

Still, job growth remains too weak to rapidly bring relief to the more than 12 million Americans who are unemployed.

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