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 2/15/07 For Jan 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production came in very weak in January. Overall industrial production fell 0.5 percent in January, following a 0.5 percent boost in December. The January decline was below the consensus forecast for a 0.1 percent decrease in January. By sectors, manufacturing output dropped 0.7 percent, following a 0.8 percent boost in December. For January, mining output decreased 1.2 percent while utilities output jumped 2.3 percent.
Overall industrial output was 2.6 up percent year-on-year in January while that for manufacturing was up 1.8 percent.
Most of the weakness in manufacturing in January was in durables but nondurables also was down. Durables output fell 1.3 percent in January, while nondurables declined 0.2 percent. Durables declines were led by motor vehicles & parts, down 6.0 percent; machinery, down, 4.1 percent, and nonmetallic metals, down 2.7 percent. Aircraft was up 1.1 percent. Within nondurables, weakness was primarily in printing & publishing, down 1.5 percent; textiles, down 1.4 percent; food & tobacco, down 0.8 percent; and chemicals, down 0.7 percent. Petroleum and apparel were up 2.8 percent and 1.0 percent, respectively.
Overall capacity utilization in January slipped to 81.2 percent from 81.8 percent in December. The market had projected capacity utilization to slip to 81.6 percent from the initial estimate of 81.8 percent for December. For manufacturing, capacity utilization fell to 79.6 percent in January from 80.4 percent in December.
Today's report shows an erratic pattern in manufacturing. This is the erratic data that Fed Chairman Bernanke indicated should be expected during a period of deceleration. Given that today's Empire State manufacturing report showed a spike for February, we can expect continued unevenness at the national level. Today's report should be good for bonds but the unevenness in economic growth likely will weigh on equities and the dollar.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production rebounded 0.4 percent in December, following a 0.1 percent decline in November. The largest component, manufacturing, jumped 0.7 percent in December, following no change in November. However, we have recently seen weakness in the Empire State manufacturing survey, the ISM survey, and in production hours in manufacturing. In the January employment situation report released earlier in February, total production hours in manufacturing fell 0.8 percent in January - suggesting a drop in manufacturing output for February.
Industrial production Consensus Forecast for January 07: -0.1 percent
Range: -0.4 to +0.5 percent
Capacity utilization Consensus Forecast for January 07: 81.6 percent
Range: 81.2 to 82.0 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. |
![[Chart]](chart_1.gif)
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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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