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 3/16/07 For Feb 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production rebounded in February, but primarily on a sharp spike in utilities output. Overall industrial production rebounded 1.0 percent in February, following a 0.3 percent decline in January. The February advance was above the consensus forecast for a 0.3 percent increase in February. By sectors, manufacturing output increased 0.4 percent, following a 0.5 percent drop in January. For February, mining output edged up 0.1 percent while utilities output surged 6.7 percent.
Overall capacity utilization in February increased to 82.0 percent from 81.4 percent in January. The consensus had forecast that capacity utilization would rise 81.3 percent from the initial estimate of 81.2 percent for January. For manufacturing, capacity utilization stood at 80.1 percent in February, compared to 79.9 percent in January.
Most of the strength in manufacturing in February was in durables. Durables output rebounded 0.8 percent in February, following a 0.9 percent drop the prior month. Nondurables slipped 0.2 percent, following a 0.1 percent dip in January. Within durables gains were seen in primary metals, up 0.7 percent; fabricated metal products, up 0.1 percent; computer & electronic products, up 2.2 percent; electrical equipment, up 0.5 percent; motor vehicles and parts, up 3.1 percent; and aerospace, up 0.1 percent. Declines were seen in wood products, down 1.7 percent; nonmetallic mineral products, down 0.9 percent; machinery, down 0.1 percent; and furniture, down 0.9 percent.
Nondurables posted increases in food, beverage & tobacco products, up 0.5 percent; textiles, up 0.3 percent; and paper, up 1.1 percent. Nondurables declines were in apparel & leather, down 0.9 percent; petroleum & coal products, down 1.8 percent; chemicals, down 0.2 percent; and plastics & rubber products, down 1.2 percent.
Today's report is clearly comforting to equities after weak data from the Philly and New York Feds. Bonds will not like the numbers but certainly equities will like the positive manufacturing figures. For the big picture, manufacturing has slowed in the first quarter but remains moderately positive. Regional survey data are currently soft but point to a moderate rebound in the second half. Manufacturing is fitting the soft landing scenario - now we just need inflation to cooperate which is not happening on schedule.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production fell 0.5 percent in January, following a 0.5 percent boost in December. The manufacturing component was even weaker, declining 0.7 percent, following a 0.8 percent boost in December. Last month's weakness was led by a decline in motor vehicle production and this component is likely to be weak again given recent inventory problems.
Industrial production Consensus Forecast for February: +0.3 percent
Range: -0.2 to +0.4 percent
Capacity utilization Consensus Forecast for February 07: 81.3 percent
Range: 80.9 to 82.4 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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