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 1/16/08 For Dec 2007 | |||||||||||||||||||||||||
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Highlights
Industrial production in December surprised on the upside but remained very weak. Overall industrial production was unchanged in December, following a 0.3 percent boost in November. Overall industrial production was above the consensus forecast for a 0.2 percent dip in December. The manufacturing component also was unchanged in December, following a 0.3 percent advance in November. For December, utilities output declined 0.2 percent while mining output increased 0.1 percent.
Overall capacity utilization decreased to 81.4 percent in December from 81.6 percent in November and compared to the consensus forecast of 81.2 percent for the latest month. The capacity utilization rate for manufacturing came in at 79.7 percent in December, incrementally down from 79.8 percent in November. Both overall and manufacturing utilization rates have been on a moderate downtrend, pointing to some easing in resource utilization.
By market groups in December, production was led by business equipment, which was up 0.8 percent. Consumer goods edged up 0.1 percent. Materials declined 0.3 percent.
Within manufacturing, durables output was unchanged in December, following a 0.3 percent rise in November. Nondurables edged down 0.1 percent after a gain of the same amount the month before.
Year-on-year, overall industrial production was up 1.5 percent in December, slipping from up 2.2 percent in November.
Today's report shows manufacturing as weak but not as much as had been feared. Equities should like the numbers but markets are focusing more on company earnings with more subprime related losses expected.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production bounced back in November, rebounding 0.3 percent after a 0.7 percent drop in October. The gain was centered in manufacturing which rose 0.5 percent to almost reverse October's 0.6 percent drop. Strength was in business equipment. But there are signs that manufacturing could be tipping into recession even if the overall economy may not. The Philly Fed and ISM indexes fell into negative territory in December and aggregate production hours in manufacturing fell a sharp 0.7 percent, according to the jobs report. While one month does not make a trend, it looks almost certain that we will get a negative number for December industrial production - at least for the manufacturing component. With housing already in depression, count on a negative production number raising further talk of overall recession.
Industrial production Consensus Forecast for December 07: -0.2 percent
Range: -0.5 to +0.1 percent
Capacity utilization Consensus Forecast for December 07: 81.2 percent
Range: 80.9 to 81.4 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. |
![[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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