Stronger factories, lower prices lift economy

WASHINGTON (AP) — U.S. manufacturing is recovering from a slump, and inflation may be pking.
Data issued Wednesday point to an economy growing slowly but stdily. Still, surging oil prices and a possible Europn recession thrten to drain the economy's momentum.This Nov. 14, 2011 photo, shows a computer using the 7 Home Premium operating system, at Micro Center computer store in Santa Clara, Calif. Consumers paid less for gas, cars and computers last month, as overall prices dropped for the first time since June. Inflation is sing after prices rose sharply this spring. (AP Photo/Paul Sakuma)"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, incrsed 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.
"In the current soft economic environment, inflation is not an issue for policymakers," said Jennifer Lee, an economist at BMO Capital Markets.
Factory production was dragged down this spring after the Japanese rthquake and tsunami disrupted supply chains for automakers and other manufacturers. Rising food and gas costs and shaky financial markets caused consumers to cut back on big purchases.
The auto industry has rebounded to drive most of the growth in factory output. Many U.S. auto plants, which depend upon parts from Japan to produce various models, are seeing supply chains flow more freely.
Higher output at auto plants has allowed dlers to stock popular models that were in demand this spring. As a result, October sales were 7 percent higher than the same month last yr. Light trucks were the biggest contributor.
A steep drop in gas prices was a rson the Consumer Price Index dropped 0.1 percent in October. Food prices did rise, but at the slowest pace this yr. 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. They have been rising as the economy improves while tensions rise in countries that hold some of the world's major sources of crude.
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. The October gain in retail sales suggests similar growth in the final three months of the yr.
Instability in Europe might also hurt the U.S. economy. A shaky euro would likely strengthen the dollar, making U.S. goods appr more expensive to overss buyers. And exports to Europe alrdy account for about one-fourth of U.S. corporate revenue, analysts say.
Europe's economy is barely growing, and sharp government spending cuts might tip it back into recession. If that happens, slowing output by U.S. manufacturers could hinder the broader economic recovery.
Source:The Associated Press