Industrial production edges up in October

WASHINGTON - Industrial production edged up 0.1 percent in October, a smaller-than-expected increase that signals a bumpy recovery ahead.

Stronger activity at electric and gas utilities drove last month's gain, but production at factories — the single biggest slice of industrial output — declined.

That's troubling because it suggests that consumers and businesses remain cautious in their spending, which could continue to restrain manufacturing activity, tempering the strength of the recovery.

Economists expected the Federal Reserve report Tuesday to show overall industrial production grew 0.4 percent in October.

The 0.1 percent increase followed a 0.6 percent gain in September, slightly smaller than initially reported. But production rose 1.3 percent in August, better than previously estimated.

A rebound in auto production, driven largely by the government's now defunct Cash for Clunkers program, has helped to industrial production in recent months. Car production sagged in October, as the clunker benefit ended in August.

Even though overall industrial production rose for the fourth straight month, growth has slowed considerably.

At factories, production actually fell 0.1 percent last month after a 0.8 percent increase in September. It was the first decline since June.

Production cutbacks were logged last month not only for cars, but also for appliances, furniture and carpeting, clothing, computer and electronic products, paper products, petroleum and coal products, fabricated metal products and other things.

Federal Reserve Chairman Ben Bernanke warned Monday that a number of "headwinds" -- including rising unemployment and hard-to-get credit -- will restrain the recovery.

Against that backdrop, the jobless rate -- now at 10.2 percent -- could rise as high as 11 percent by the middle of next year before starting to drift slowly downward, economists say.

After four straight losing quarters, the economy returned to growth in the summer at a pace of 3.5 percent from July through September. Economists believe growth probably slowed a bit in the current quarter.

The economy likely will continue to lose speed in the first quarter of next year, as the bracing impact of President Barack Obama's $787 billion stimulus package fades.

Faced with rock-bottom inventories of goods, businesses at some point will need to replenish them, one of the forces that is expected to help boost factory production in the coming months. Even the smallest increase in customer demand would probably force factories to bump up output because businesses' stockpiles are razor thin, analysts say.

Tuesday's report also showed that production at mines dropped 0.2 percent in October, following a 0.6 percent gain in September.

Output at gas and electric utilities, however, jumped 1.6 percent, after a posting 0.2 percent drop in September.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.