The index of industrial production measures the physical output of the nation's factories, mines and utilities. The industrial sector accounts for less than one-fifth of the economy but for most of its cyclical variation. The capacity utilization rate reflects the usage of available resources among factories, utilities and mines. A high and rising operating rate may signal that resources are being utilized to their fullest capacity -- a warning sign of inflationary pressures. Why Investors Care
| Released on 1/17/07 For Dec 2006 | |||||||||||||||||||||||||
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Highlights
Overall industrial production rebounded 0.4 percent in December, following a 0.1 percent decline in November. The December increase was above the consensus forecast for a 0.1 percent increase in December. By sectors, manufacturing output jumped 0.7 percent in December, following no change in November. Mining output rebounded 0.8 percent in December after a 0.4 percent drop the prior month. Utilities output fell 2.6 percent, following a 0.2 percent rise in November. Overall industrial output is up 3.0 percent year-on-year in December - down from up 3.5 percent in November. Manufacturing output is up 3.3 percent year-on-year - slightly higher than up 3.1 percent in November.
Most of the strength in manufacturing was in durables and was broad based. Durables output jumped 1.1 percent in December, following a 0.2 percent boost in November. Durables gains were led by motor vehicles, computers & electronics, electrical equipment, and primary metals. Specifically, motor vehicle output was up 2.6 percent in December, following a 3.4 percent boost the month before. Excluding motor vehicles, manufacturing output advanced 0.6 percent in December, following a 0.3 percent decline in November.
Nondurables manufacturing also was healthy overall with a 0.3 percent rebound in December, following a decline of 0.3 percent the month before. Nondurables gains were led by petroleum products, apparel, and printing & publishing.
Overall capacity utilization in December rose to 81.8 percent from a downward revised 81.6 percent in November. The consensus expected capacity utilization to slip to 81.7 percent from the initial estimate of 81.8 percent for November. For manufacturing, capacity utilization jumped to 80.4 percent in December from 80.0 percent the prior month.
Today's report indicates that the manufacturing sector has rebounded from weakness in recent months. The numbers corroborate the view that recent weakness does not reflect a drift in the economy toward recession. Instead, according to this view, the recent declines in manufacturing were merely a temporary adjustment to slower growth in demand. The December manufacturing numbers should bolster equities but nudge bond rates up while supporting the dollar.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production rose 0.2 percent in November, following no change in October. However, most the latest gain was due to a jump of 3.7 percent in motor vehicle output. Excluding motor vehicles, manufacturing output was flat in November, following a 0.3 percent decline in October. While the December ISM's return to positive territory (but barely) helped calm concern over manufacturing somewhat, the debate continues over the direction of manufacturing. One view is that it is joining the ranks of housing as a declining sector. The other view is that manufacturing is merely in a mild readjustment phase to slower economic growth. Broad gains in the industrial production index - however modest - in December would help support this latter view.
Industrial production Consensus Forecast for December 06: +0.1 percent
Range: -0.2 to +0.3 percent
Capacity utilization Consensus Forecast for December 06: 81.7 percent
Range: 81.5 to 81.9 percent
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The industrial sector accounts for less than 20 percent of GDP. Yet, it creates much of the cyclical variability in the economy. |
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The capacity utilization rate reflects the limits to operating the nation's factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84 to 85 percent. |
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