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 6/15/07 For May 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production showed surprisingly little life in May, unchanged in the month with capacity utilization, the prior pressure in which has been a concern for the Federal Reserve, slipping 2 tenths to 81.3 percent. The data included a sharp downward revision to April's industrial production gain to 0.4 percent, down from an initial 0.7 percent, with capacity utilization revised 1 tenth lower to 81.5 percent.
The report has three components with manufacturing at the center. Manufacturing output rose only 0.1 percent in the month, a contrast with the month's strong ISM report but in line with declines in factory employment and hours. Within manufacturing, output of consumer goods fell 0.2 percent for a year-on-year gain of only 2.4 percent. Output of business equipment, which had been a center of strength, was unchanged in the month for a year-on-year reading of 4.6 percent. This year-on-year reading has been on an incremental decline from high single digits at the beginning of the year. Utilities, which are very volatile month-to-month in reflection of weather changes, fell 1.3 percent, while mining output, the report's third component, rose 0.5 percent.
The report adds a twist to the economic outlook which had been boosted in recent weeks by sharp gains in anecdotal reports, including even this morning's Empire State report. The industrial production report is a reminder that the revival in the manufacturing sector may be limited, pointing to only moderate rates of growth for the sector in the second half. Markets didn't show any initial reaction to the report, which the Fed will probably be happy with as it shows moderate growth along with easing utilization pressures.
Industrial production jumped 0.7 percent during April, following a 0.3 percent dip the prior month. Capacity utilization rose 4 tenths in the month to a still moderate 81.6 percent. More recently, manufacturing indicators have been mostly positive. Durable goods orders rose 0.6 percent in April and both ISM surveys have been moderately healthy. However, manufacturing production hours declined 0.3 percent in May as reported in the employment situation. But this has not been a very good indicator for manufacturing recently - possibly due to increases in cyclical productivity.
Industrial production Consensus Forecast for May: +0.2 percent
Range: -0.2 to +0.5 percent
Capacity utilization Consensus Forecast for May 07: 81.6 percent
Range: 81.3 to 81.8 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. |
| 2007 Release Schedule | ||||||||||||||||||||||||||
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