Fed Lowers Production Estimates

The Federal Reserve Monday lowered its estimate of U.S. industrial production and plant use in December, suggesting the economy continues to show few signs of overheating.

The Fed’s so-called annual benchmark revisions to the statistics also suggest that industrial prices remain well-behaved. A lower plant-use rate “should make people feel comfortable about inflation,” said Robert Dederick, an economic consultant at the Northern Trust Co. in Chicago, before Monday’s report. A rising plant-use rate suggests factories could turn to older and less efficient equipment to meet demand, pushing their costs higher.

While the Fed’s annual revisions go back to 1987, the more timely figures showed output at the nation’s factories, mines and utilities increased a revised 0.7 percent in December, down from the Fed’s initial estimate of a 0.8 percent gain.

During November, production rose 0.8 percent, the same as previously reported. In October, production was unchanged from September, previously reported as a loss of 0.2 percent.

The Fed’s benchmark revisions also showed that the plant-use rate rose to 83.5 percent in December - the highest since May - from 83.2 percent during November and 82.8 percent during October. Previously, the Fed said that the plant-use rate - also called capacity utilization - rose to 83.8 percent in December, which was the highest in more than a year, from 83.4 percent during November and 83.0 percent in October.

The central bank is scheduled to release its report on January industrial production and capacity utilization, on Feb. 14.

The outlook for manufacturing is positive. Exports are running at record levels, according to the Commerce Department. And the domestic economy continues to grow with few signs of accelerating inflation, the Fed said last week in its latest regional report, commonly known as the beige book.

“Manufacturing activity continued to grow, with significant strength coming from capital equipment and materials manufacturers,” the Fed in the report, based on information collected by its 12 district banks.

The news from manufacturers, themselves, is more or less optimistic. Xerox Corp., based in Stamford, Connecticut, said fourth-quarter earnings increased 12 percent on strong demand for its color printers and copiers.

Caterpillar Inc.’s fourth-quarter earnings topped estimates, advancing 27 percent, though the Peoria, Illinois manufacturer of heavy construction equipment said 1997 sales will be only “slightly” higher than the year just ended.

At Fairfield, Connecticut-based General Electric Co., fourth-quarter earnings increased 11 percent, reflecting stronger sales at its home appliance and industrial power system divisions as well as gains in financial services and broadcasting.