WASHINGTON -- U.S. industrial production surged 0.8% in October as automakers increased assemblies of autos and trucks to catch up with consumer demand for new models, the Federal Reserve reported yesterday.
The increase is the biggest since last November and doubles the revised 0.4% rise in September output, up from the increase of 0.3% initially reported.
Analysts said that while the report reflects more strength in the industrial sector than expected, the bond market's reaction was muted because traders had braced for a large gain anyway. At the same time, the report is consistent with other recent signs that the economy is headed for at least a burst of growth in the final three months of the year.
"It's just another piece of evidence that the economy has picked up steam. We have been waiting for this," said James Coons, chief economist for Huntington National Bank in Columbus. "We're back on track for growth of 3% or maybe a little more."
After running down inventories over the summer, automakers have been beefing up production as buyers return to showroom floors. Total assemblies of autos and trucks reached an annual rate of 11 million units in October, up from 10.1 million in September, and 9.6 million in July and August.
Auto production could account for as much as half of total gross domestic product in the fourth quarter, which may turn out to be as high as 4%, said Paul Lally, an economist with R. H. Wrightson & Associates.
About half of the 0.8% increase in October production came from autos and trucks, the Fed said. Excluding autos, production was up 0.4% following a 0.3% gain in September. Compared to a year earlier, production was up a moderate 4.4%.
The increase in output boosted the capacity utilization rate for U.S. factories, mines. and utilities to 82.4% from 81.9%, the highest reading since August 1990. That is half a percentage point above the 1967-1992 average for the index, the Fed said.
Still, analysts said the current pace of economic growth is not sustainable and that they expect activity to cool next year. "The big question is what's going to happen in the first quarter," said Lally, who noted that GDP fell to 0.8% in the first three months of 1993 after a sizzling 5.7% in the fourth quarter of 1992.
Lally is looking for first-quarter growth of around 2% in 1994, although, he said, "It'll be a better start to the New Year than what we're accustomed to."
A separate report from the Commerce Department said that U.S. businesses increased inventories 0.3% in September while sales shot up 0.8%. The combination of sales outstripping inventories pushed the ratio of inventories to sales down to 1.45, the lowest reading in at least 10 years, department officials said.
The rise in inventories was a small surprise to the bond market because expectations were for no change. Erich Heinemann, chief economist for Ladenburg, Thalmann & Co., said given the evidence of strong retail sales and higher industrial production, the gain in inventories suggests that the companies are stocking up on imports.
That could in turn mean that the September merchandise trade gap, to be reported on Friday, will be wider than expected, Heinemann said. Analysts are looking for a $10 billion trade deficit, up slightly from $9.7 billion in August.
