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INSTANT VIEW: Industrial production up for 3 straight months

NEW YORK (Reuters) - U.S. industrial production rose in September for a third consecutive month, Federal Reserve data showed on Friday, suggesting the economy closed out the third quarter with surprisingly strong growth.

KEY POINTS: * The 0.7 percent increase was much greater than the 0.2 percent advance that economists polled by Reuters had expected. The report also showed August’s gain was revised up to 1.2 percent from the originally reported 0.8 percent.

* For the third quarter as a whole, output advanced at a 5.2 percent annual rate, the first quarterly gain since the first quarter of 2008 and the largest increase since the first quarter of 2005.

* The figures will likely reinforce the view that the longest recession since the Great Depression ended in the third quarter. Economists in a Reuters poll released on Thursday pegged the third-quarter growth rate at 3.1 percent.

* Capacity utilization, a measure of slack in the economy, rose to 70.5 percent in September from 69.9 percent a month earlier, although it was still 10.4 percentage points below its 1972-2008 average.

TREASURY INTERNATIONAL CAPITAL FLOWS:

Net overall capital inflows into the United States rebounded to $10.2 billion in August from a revised outflow of $107.7 billion the previous month, the Treasury Department said on Friday.

KEY POINTS: * The department originally reported outflows of $97.5 billion for July. Net long-term capital inflows, excluding swaps, rose to $28.6 billion from a $15.3 billion inflow in the previous month. * The inflows, however, were not enough to cover the U.S. trade deficit of $30.7 billion for the same month.

COMMENTS:

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:

“The report was surprisingly more robust than expected. We’re seeing broad-based strength, but one reason for the surprise was that although the cash-for-clunkers program expired, auto manufacturers continued to produce vehicles. We saw an 8.1 percent rise in September. Perhaps they were rebuilding inventories, or it has to do with new model year roll-out, but it was unanticipated. Maybe the comeuppance will be pushed back into October or November. But the extra month’s boost will be positive for the third quarter GDP figure and the report, along with retail sales, emphasizes that recovery is starting for consumers and manufacturers.

“I think the positive news puts the Fed in a position where it can hike sooner than expected and perhaps by more than expected. The data confirms our view that the Fed will begin lifting rates in the first quarter.”

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK

“The strength was led by an 8.1 percent gain in motor vehicle and parts as auto plants ramped again to fill the depleted inventories from the summer that were further exaggerated by the CARS program. Utility output and machinery production both fell. Manufacturing will be a key factor contributing to the second half recovery and the inventory rebuilding is happening mostly in vehicles, mining and computer and electronics. The sustainability will of course be determined by the pace of final demand.”

WILLIAM LARKIN, PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, BOSTON:

“Industrial production was much stronger than forecast. It is another indication of the bottoming phase of the economy and of some improvement. The big news though was the upward revision of the prior number.”

CRAIG PECKHAM, EQUITY TRADING STRATEGIST, JEFFERIES & COMPANY, NEW YORK:

“The most impressive dynamic is that we’re starting to see is signs of continuous trend in increasing capital utilization. We’ve crossed over the 70 percent threshold, we haven’t seen that since the very early part of this year. These are signs of steps in the right direction. We’re pleased to see it not just on the improving side, but also ahead of expectations.”

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK

“This could possibly be a V-shaped industrial recovery. Autos have a big part to do with it, but that’s not all the improvement. Other durables are still weak.”

“To summarize the increases in August and September, they will give a nice boost to third quarter GDP. So it will be interesting to see what happens going forward. Growth will be uneven but it’s important to bear in mind that the inventory decline in August is the biggest so far in the current recession. Inventory was still falling even as production has picked up. That’s a really good sign if you are concerned about future growth. It’s a compelling reason to not worry about an overhang when the effect from ‘cash for clunkers’ fades.”

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT, WALTHAM, MASSACHUSETTS:

“Foreigners are still investing in U.S. assets, especially U.S. Treasuries, which explains why their yields are so low. This tells while the currency has been weakening, we have not seen a collapse in confidence in U.S. assets. Clearly the dollar has weakened more since then, but Treasury yields are still pretty low.”

AMELIA BOURDEAU, SENIOR CURRENCY STRATEGIST, UBS, STAMFORD, CONNECTICUT:

“I think the TICs number was pretty much on expectations. It’s not too exciting. We still have low levels of inflows but they don’t seem to be falling as quickly as they were before. I just think the TICs data is lagging so there was very little reaction.”

MARKET REACTION: STOCKS: U.S. stock index futures pared losses after TICs data. BONDS: U.S. Treasury debt prices pulled back on gains. DOLLAR: U.S. dollar was barely changed.

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