Industrial production unexpectedly dropped in January, dragged down by a decline in utilities as milder temperatures curbed demand for heating. Output fell 0.1 percent after a 1.2 percent increase in December that was larger than initially reported, figures from the Federal Reserve showed today. Utilities and mining fell, while manufacturing, which makes up 75 percent of the total, rose 0.3 percent. Economists had forecast a 0.5 percent gain in overall production, according to the median estimate in a Bloomberg News survey. The report likely reflects weakness that will be short- lived as the recovery becomes broad-based, benefiting manufacturers like Parker Hannifin Corp. Overseas demand for American-made goods, coupled with gains in business and consumer spending, mean manufacturing, which accounts for about 11 percent of the economy, will keep bolstering growth. “Even in good periods, you get some down months,” Mike Feroli, chief U.S. economist at JPMorgan Securities LLC in New York, said before the report. He was one of three economists in the Bloomberg survey who forecast a decline. “The trend is still quite favorable. Exports are pretty strong and inventories look pretty lean.” Other reports today showed wholesale costs increased for a seventh consecutive month in January, led by higher prices for fuel, and builders began work on more homes than forecast. Estimates for industrial production among the 80 economists surveyed by Bloomberg ranged from a drop of 0.5 percent to an increase of 0.9 percent. Factory production for December was revised to an increase of 0.9 percent from a previously estimated gain of 0.4 percent. Capacity utilization, which measures the amount of a plant that is in use, fell to 76.1 percent last month from 76.2 percent in December. The gauge compares with the average of 80 percent over the past 20 years, signaling inflation will remain contained. Mining, Utilities Mining production, which includes oil drilling, decreased 0.7 percent. Utility output fell 1.6 percent after a 4.1 percent increase the prior month, when unseasonably cold temperatures boosted demand for heating, the Fed said. Automobile production is benefiting from rising sales. Output of motor vehicles and parts jumped 3.2 percent in January after rising 0.2 percent a month earlier. Excluding autos and parts, manufacturing increased 0.1 percent after a 0.9 percent gain. Consumer goods production climbed 0.1 percent following a 1 percent increase. Production of business equipment rose 0.9 percent after a 1 percent gain. Output of computers and semiconductors rose 0.9 percent after increasing 1.5 percent. Factories, which led the economy out of the recession that ended June 2009, are likely to stay busy this year as consumers continue spending, businesses invest in new equipment and companies replenish inventories to meet sales in the U.S. and abroad. Construction Equipment Parker Hannifin, a Cleveland-based manufacturer viewed as a barometer of global industry, is among businesses seeing an improvement in orders as the economy recovers. The maker of components used in construction equipment, aircraft, refrigeration, and hybrid delivery trucks also projected growth in the Europe, Asia and Latin America regions. “We’re pretty bullish as far as what the future order pattern is,” Thomas Williams, executive vice president and operating officer, said on a conference call on Feb. 9. “Our backlog is building,” he said, and “we’ve got ramp-up in volume.” Recent reports reinforce projections for continued growth in manufacturing. The Institute for Supply Management’s factory index jumped last month to the highest level since May 2004, while the Fed Bank of New York’s general economic gauge showed activity expanded in February at the fastest pace since June. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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