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 4/17/07 For Mar 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production weakened in March but weakness was in utilities as manufacturing posted a sizeable increase. Overall industrial production fell 0.2 percent in March, following a 0.8 percent boost in February. The markets had projected no change in the overall industrial production index for March. By sectors, manufacturing output jumped 0.7 percent, following a 0.1 percent increase in February. For March, utilities output dropped 7.0 percent while mining output edged up 0.1 percent.
Overall capacity utilization in March slipped to 81.4 percent from 81.6 percent in February. The consensus had projected that capacity utilization would edge down to 81.9 percent from the initial estimate of 82.0 percent for February. For manufacturing, capacity utilization stood at 80.1 percent in March, up from 79.7 percent in February.
Most of the strength in manufacturing in March was led by durables but nondurables output also was quite healthy. Durables output jumped 0.9 percent in March, following a 0.1 percent rise in February. Nondurables advanced 0.5 percent, following no change the prior month. Within durables gains were led by nonmetallic minerals and computers & electronics, although gains were widespread. Furniture, however, declined a notable 0.7 percent, continuing weakness in that housing related component. Nondurables were a little more mixed than durables with both strong and weak components more interspersed. Notable gains were seen in rubber & plastics, chemicals, and food & tobacco. Textiles and apparel led declining components.
Today's report is very good given that strength was in manufacturing and weakness was largely a reversal of the jump in utilities caused by unseasonably cold weather in February. Equities should like today's numbers but bond markets will have to balance the strong manufacturing and housing starts (released earlier today) against a good core CPI.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production rebounded 1.0 in February, but primarily on a sharp spike in utilities output. The gain in manufacturing was more moderate with a 0.4 percent rise, following a 0.5 percent drop in January. March is likely to be slower, given the weak gains in retail sales, gains in inventory-to-sales ratios, and slowing export growth. Also, from the March jobs report, aggregate hours in manufacturing rose 0.2 percent, suggesting a modest rise in the manufacturing component. Overall capacity utilization in February increased to 82.0 percent from 81.4 percent in January while for manufacturing, capacity utilization stood at 80.1 percent in February, compared to 79.9 percent in January.
Industrial production Consensus Forecast for March: 0.0 percent (flat)
Range: -0.3 to +0.3 percent
Capacity utilization Consensus Forecast for March 07: 81.9 percent
Range: 81.6 to 82.2 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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