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 5/16/07 For Apr 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production jumped 0.7 percent during April in a report that confirms strength in ISM manufacturing data and points to renewed growth in the manufacturing sector. Capacity utilization rose 4 tenths in the month to a still moderate 81.6 percent.
Manufacturing output, the most important of the report's three main industry categories, rose 0.5 percent and added to a 0.6 percent gain in the prior month. Capacity utilization edged higher to 80.2 percent. Manufacturing output had been flat for the prior six months. Output in utilities and mining, the other two industry categories, was mixed with utilities up 3.5 percent on the month and mining down 0.3 percent.
Year-on-year rates for manufacturing output have been on the decline, at only 1.9 percent in April for the lowest rate in about 3-1/2 years. The Federal Reserve's efforts to the slow economy have hit two sectors especially hard, housing and manufacturing. The outlook for housing is still uncertain, but the manufacturing sector appears to be coming back to speed. Treasuries eased in initial reaction to the report.
Industrial production fell 0.2 percent in March, but manufacturing output jumped 0.7 percent. Overall weakness was in utilities. We are likely to see a reversal of the utilities component but manufacturing is not likely to post a similar gain in April. From the earlier employment report for April, manufacturing production hours fell 0.4 percent, following a 0.5 percent rise in March, suggesting a weak month for manufacturing in April.
Industrial production Consensus Forecast for April: +0.2 percent
Range: +0.1 to +0.6 percent
Capacity utilization Consensus Forecast for April 07: 81.5 percent
Range: 81.3 to 81.7 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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