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Manufacturing, drop in prices lift economy

Increasing industrial production and slowing inflation indicate slow but steady growth.

The Associated Press

WASHINGTON - U.S. manufacturing is recovering from a slump, and inflation may be peaking.

Data issued Wednesday point to an economy growing slowly but steadily. Still, surging oil prices and a possible European recession threaten to drain the economy's momentum.

"The continued resilience of manufacturing is encouraging, since this should be the sector most exposed to the global economic slowdown," said Paul Ashworth, chief U.S. economist with Capital Economics.

Industrial production rose in October at the fastest pace in three months. Output at the nation's factories, utilities and mines rose 0.7 percent last month, the Federal Reserve said Wednesday.

Factory output, the largest component of industrial production, increased a solid 0.5 percent. It was the fourth straight monthly gain. Factories made more trucks, electronics and business equipment.

Manufacturers "are benefiting from the strong growth in emerging markets, and domestic businesses are confident enough in the future to continue expanding purchases of capital equipment," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a trade group.

A separate report from the Labor Department showed Americans paid less for gas, cars and computers last month as overall prices fell for the first time since June.

Slower inflation could give the Federal Reserve more leeway to lower long-term interest rates to help the economy.

Factory production was dragged down this spring after the Japanese earthquake and tsunami disrupted key supply chains.

The auto industry has rebounded to drive most of the growth in factory output. Many U.S. auto plants, which depend on parts from Japan to produce various models, are seeing supply chains flow more freely.

Higher output at auto plants has allowed dealers to stock popular models. As a result, October sales were 7 percent higher than the same month last year.

A steep drop in gas prices was a key reason the Consumer Price Index dropped 0.1 percent in October. Food prices did rise, but at the slowest pace this year. Excluding volatile food and energy costs, so-called "core" prices rose 0.1 percent.

Still, oil prices have been climbing in recent weeks and hit $100 a barrel Wednesday for the first time in four months. If those prices translate into higher gas prices, consumers could pull back on spending and slow economic growth.

Strong consumer spending helped the economy grow at an annual rate of 2.5 percent in the July-September quarter.