Sandy slows US factory production

US industrial activity unexpectedly declined in October as superstorm Sandy battered the northeast, knocking out power across the region.

The Federal Reserve said on Friday that industrial production fell 0.4 per cent last month from September, missing expectations of an 0.2 per cent rise. Output in September was revised down to a 0.2 per cent increase from an original reading of 0.4 per cent.

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The biggest effects from the October 29 storm, which left more than 100 dead and caused billions of dollars of damage, were felt in utilities, chemicals, food, transportation equipment and computers and electronics, the Fed said. Excluding the impact of the storm, overall production rose 0.6 per cent.

Output at factories - which makes up three-quarters of total production - dropped 0.9 per cent, but stripping out the storm effects, manufacturing production was unchanged from the previous month. The operating rate for factories was 75.9 per cent, nearly three percentage points off its long-run average.

On Thursday, two separate reports from regional Fed banks showed Sandy disrupted factory activity last month in the mid-Atlantic and, to a lesser extent, the New York region.

"The Sandy hit seems to have been very localised," said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors. "We expect November output to rebound but we doubt all the lost ground will be recovered. Even without Sandy, the past few months have been difficult for manufacturers, thanks to weakness in China and Europe; the former has started to pick up, the latter, not."

Production of machinery across the US led declines among durable goods, falling 1.9 per cent, while output of appliances and electrical equipment fell 1.4 per cent.

Business equipment output slipped 1.2 per cent and production of consumer goods was down 0.9 per cent.

Among utilities output fell 0.1 per cent. A bright spot was in mining, where output accelerated 1.5 per cent from 0.9 per cent in September.

Capacity utilisation, which measures the amount of a plant that is in use, dropped from 78.2 per cent to 77.8 per cent.