US industrial output unexpectedly fell in October as Superstorm Sandy disrupted production, but factory activity appeared at a standstill even aside from the storm.

Production at the nation's mines, factories and refineries contracted 0.4 per cent last month after a 0.2 per cent increase in September, the Federal Reserve said yesterday. Economists had expected a 0.2 per cent gain.

The Fed said Sandy, which tore through the East Coast at the end of October, cut output by nearly one percentage point. The brunt of the impact was felt by utilities and producers of chemicals, food, transportation equipment, computers and electronic products, it said.

Still, the gain in output last month would have been modest even without the storm, with fears over the possibility of higher taxes and sharp cuts in government spending early next year making businesses hesitant to raise output and invest.

The automatic spending cuts and tax increases, known as the fiscal cliff, would drain about $600 billion from the economy unless the US Congress and Obama administration agree on a plan to soften the blow.

Industrial output contracted in the third quarter for the first time since the 2007-09 recession ended, but the factory sector does not appear headed for a hard landing.

Last month, utilities output fell only 0.1 per cent, even though parts of the Northeast lost power during the storm. Utilities production was flat in September. Production at mines increased 1.5 per cent after rising 0.9 per cent the prior month.

Manufacturing output fell 0.9 per cent as car production declined for a third month. Manufacturing had gained 0.1 per cent in September. Excluding the effects of the storm, manufacturing output was little changed from its September level.

Production of computer and electronic products fell 0.3 per cent last month after being flat in September.

The report on industrial production showed that the amount of factory capacity in use - a measure of how fully firms are using their resources - slipped 0.8 of a point to 75.9 per cent in October, the lowest level since November 2011. The factory operating rate is 2.9 percentage points below its long-run average.

Overall industrial capacity utilisation fell to 77.8 per cent - the lowest since November 2011 - from 78.2 per cent in September. That was 2.5 percentage points below its long-run average.-Reuters