U.S. industry shows muscle in late 2013

Posted by Lucia Mutikani - Reuters

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(Reuters) – U.S. industrial output rose at its fastest clip in 3-1/2 years in the fourth quarter as factory activity closed out the year on a strong note, a sign of the economy’s brightening prospects.

Manufacturing production rose a stronger-than-expected 0.4 percent in December after an out-sized 1.0 percent increase the prior month, a Federal Reserve report on Friday showed.

That helped push overall output at the nation’s factories, mines and utilities up 0.3 percent. Economists polled by Reuters had expected factory output to rise 0.3 percent, while the gain in overall industrial production matched forecasts.

For the fourth quarter as a whole, industrial production advanced at a 6.8 percent pace, the largest quarterly increase since the second quarter of 2010.

A separate report from the Commerce Department showed groundbreaking for new homes dropped 9.8 percent to a seasonally adjusted annual rate of 999,000-unit pace.

It was the largest percentage decline since April, but housing starts were coming off a multi-year high reached in November and the decline was smaller than economists had expected. In addition, cold weather appeared to be a factor.

For all of 2013, starts increased 18.3 percent to an average of 923,400-units.

“Despite the expected drop in housing construction activity in December, due to the unwind of the unsustainable strength in November and weather effects, the overall tone of this report was quite encouraging suggesting that the sector ended the year on fairly strong footing,” said Millan Mulraine, deputy chief U.S. economist at TD Securities in New York.

Groundbreaking for single-family homes, the largest segment of the market, fell 7.0 percent to a 667,000-unit pace in December. Starts for the volatile multi-family homes segment declined 14.9 percent to a 332,000-unit rate.

Starts in the Midwest, which experienced unseasonably colder weather, tumbled 33.5 percent, suggesting the weather might have weighed on home building in the region last month.

Residential construction has been on the rise after a brief lull last year in the wake of a run-up in mortgage rates.

Increasing household formation and a tight supply of houses has been boosting home building, which in turn is supporting the labor market.

Permits to build homes fell 3.0 percent in December to a 986,000-unit pace. It was the second straight month of declines. They were weighed down by a 4.8 percent drop in permits for single-family homes. Multifamily sector permits were flat.

For all of 2013, permits increased 17.5 percent to an average of 974,700-units.

The report on industrial output showed that industry employed 79.2 percent of its capacity in December – the most since June 2008. Still, capacity use remained 1 percentage point below its long-run average, the Fed said.

(Reporting by Lucia Mutikani; Additional reporting by Tim Ahmann; Editing by Paul Simao)