Washington, Nov. 15 (Bloomberg) -- U.S. industrial production probably fell for a third straight month in October, evidence manufacturing is faltering, economists said in advance of today's Federal Reserve report. A 0.3 percent decline in production at factories, mines and utilities is expected, according to the median of 62 forecasts in a Bloomberg News survey. Production fell 0.1 percent in September and 0.3 percent in August. Declining plant-use rates are limiting the ability of manufacturers to raise prices. A separate report today from the Labor Department will probably show producer costs increased 0.2 percent in October after a rise of 0.1 percent.
``Inflation is very stable,'' said Dan Seto, an economist at Sumitomo Life Investment Co. in New York. ``Even though the economy is in recovery, excess capacity continues to put downward pressure on prices.'' Excluding food and energy, the producer price index probably increased 0.1 percent in October, the same as a month earlier and the first back-to-back gains since last year. The producer price report will be released at 8:30 a.m. Washington time. There's little reason to build inventories, either, a separate report from the Commerce Department will probably show. Business inventories probably rose 0.2 percent after falling 0.1 percent the previous month, according to the median of 50 forecasts. An increase is likely because sales declined. Also today, the University of Michigan's consumer sentiment index will probably show an increase to 82 in November from 80.6 in October, as the stock market advanced, according to economists. The October reading was the lowest in nine years.
Production
The Federal Reserve will release its industrial production report at 9:15 a.m. Washington time. Manufacturing accounts for about one-seventh of the economy. The government's inventories report is expected at 8:30 a.m. The sentiment report is expected at about 9:50 a.m. Manufacturing is slowing again as consumers, worried about job prospects, terrorism and the possibility of war with Iraq, reduce their spending. Corning Inc. is responding to a drop in sales by closing plants and firing workers. Production had increased for seven straight months prior to August as the recovery from last year's recession prompted factories to replenish depleted inventories.
The Fed's report will probably show the plant-use rate probably dropped to 75.6 percent in October, the lowest in five months, from 75.9 percent a month earlier, economists said. Capacity utilization reached an 18-year low of 74.4 percent in December.
Job Cuts
Excess capacity and weak demand explain why some factories are cutting production and others are planning to spend less on capital improvements. Corning, the world's biggest maker of optical fiber used to carry telephone calls and data, said last month it was closing two U.S. plants and that it plans to cut 2,200 jobs after sales slumped 45 percent in the third quarter. Factories eliminated 49,000 jobs last month and manufacturing employment is lower than at any time since November 1961, a report this month from the Labor Department showed. Other manufacturers are cutting spending on new plants and equipment. Intel Corp., world's biggest chipmaker, said last month it cut capital spending plans this year to $4.7 billion from the $5 billion to $5.2 billion the company had budgeted.
It marked the second time this year that Intel had cut its capital spending plans. Intel, the industry's biggest spender on new equipment, in July lowered its 2002 budget from $5.5 billion. Intel spent $7.3 billion on gear in 2001. Slower spending, production, and weak employment were reasons why Fed policy makers last week said the economy was in a ``soft spot.'' Central bankers responded by lowering their target for the benchmark overnight target rate a half percentage point to 1.25 percent, the lowest since 1961. A 10-day lock out by West Coast shipping companies of members of the International Longshore and Warehouse Union that ended on Oct. 9, may have contributed to slower production as companies ran out of parts, economists said. Weather may also have played a role in slower mining production early in the month, economists said. Energy companies operating in the Gulf of Mexico lost 14.4 million barrels of crude oil production and 88.9 billion cubic feet of natural-gas output because of Hurricane Lili and Tropical Storm Isidore, according to the Interior Department.//www.quote.bloomberg.com