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 10/16/07 For Sep 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production in September came in on the soft side but was still positive. Nonetheless, the last two months of manufacturing data have been sluggish enough to leave the Fed the option of cutting interest rates again on October 31. Overall industrial production edged up 0.1 percent in September, following no change in August. Overall industrial production matched the market forecast for a 0.1 percent rise in September. The manufacturing component increased 0.1 percent in September, following a 0.4 percent decline the prior month. For September, utilities output slipped 0.1 percent while mining output rose 0.2 percent.
Overall capacity utilization was unchanged at 82.1 percent in September and equaled the consensus forecast for an 82.1 percent capacity utilization rate and compares to August's initial estimate of 82.2 percent. The capacity utilization rate for manufacturing eased to 80.4 percent in September from 80.5 percent the previous month.
The market group data show changes in output to reflect changes in demand from a slowing consumer sector and down construction sector to a still healthy investment sector. Consumer goods were down 0.3 percent and construction supplies production declined 0.2 percent. On the positive side were business equipment, up 0.4 percent; business supplies, up 0.3 percent; and materials, up 0.2 percent.
Within manufacturing, durables output slipped 0.1 percent in September, following a 0.4 percent drop in August. Nondurables edged back up 0.1 percent after a 0.4 percent drop in August. By industry, gains were led electrical equipment, chemical, printing, and transportation equipment. Weakness was led by declines in motor vehicles, wood products, petroleum products, and furniture.
Motor vehicles pulled down both overall industrial production and manufacturing output. Motor vehicle output fell 3.3 percent in September, following a 1.6 percent dip the month before. The September decline in motor vehicle output was related to strike activity. Excluding motor vehicles, overall industrial production rose 0.2 percent in September after a 0.1 percent rise in August, while for manufacturing, output rebounded 0.3 percent in September after a 0.3 percent drop the month before.
Year-on-year, overall industrial production was up 1.9 percent in September, up from 1.6 percent in August.
Today's report shows a sluggish manufacturing sector for two consecutive months. While the Fed still will want to see upcoming starts and CPI reports before the October 31 FOMC meeting, today's industrial production numbers do not stand in the way of a modest easing at month end.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production increased by 0.2 percent in August, following a 0.5 percent boost in July. However, the latest gain was based on an isolated spike in utilities output as manufacturing production slipped. The manufacturing component fell 0.3 percent in August, following a 0.7 percent boost in July. For August, utilities output surged 5.3 percent from higher electricity production while mining output fell 0.6 percent. Since manufacturing is a leading cyclical part of the economy, the Fed will be closely watching whether this sector rebounds after the August dip. Another decline in manufacturing in September would make another Fed rate cut on October 31 almost certain. Overall capacity utilization was unchanged at 82.2 percent in August but the capacity utilization rate for manufacturing fell to 80.7 percent in August from 81.0 percent in July.
Industrial production Consensus Forecast for September: +0.1 percent
Range: -0.3 to +0.3 percent
Capacity utilization Consensus Forecast for September 07: 82.1 percent
Range: 81.8 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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