WASHINGTON, Fri Nov 16, 2012 – Industrial output unexpectedly fell in October as superstorm Sandy disrupted production, but the underlying tone remained consistent with slowing manufacturing activity.
Industrial production contracted 0.4 percent last month after a 0.2 percent increase in September, the Federal Reserve said on Friday.
The Fed said the storm, which tore through the East Coast at the end of October, is estimated to have reduced the rate of change in output by nearly 1 percentage point. It cut the output of utilities, chemicals, food, transportation equipment, and computers and electronic products, the Fed said.
Economists had expected a 0.2 percent gain in industrial output last month. The storm is estimated have caused $50 billion in damage.
Aside from the storm’s impact, the trend in industrial production is biased towards weakness as fears over higher taxes and sharp cuts in government spending deter businesses from ramping up production and capital investment.
Cooling global demand is also crimping output.
The so-called fiscal cliff could drain about $600 billion from the economy early next year unless Congress agrees on an orderly plan to cut rising budget deficits.
“The big thing that stands out are the declines in business equipment, machineries and construction supplies. When you see that kind of weakness, you can’t really attribute it to the storm,” said Christopher Low, chief economist at FTN Financial in New York.
“It’s a pattern of weakness that has happened in the past three months. The most likely explanation is the weakness in capital equipment orders, which could be attributed to caution about the fiscal cliff and its possible impact on the economy.”