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 3/17/08 For Feb 2008 | |||||||||||||||||||||||||
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Highlights
Industrial production in February continued to weaken but actually posted a decline, adding to the argument that recession may have begun in February. Overall industrial production dropped 0.5 percent in February, following a 0.1 percent gain the month before. Overall industrial production was worse than the consensus forecast for a 0.1 percent decline in February. The manufacturing component declined 0.2 percent in the latest month while utilities output dropped 3.7 percent and mining output rose 0.4 percent.
The depressed housing sector continues to weaken manufacturing along with the recent pullback by the consumer - notably for motor vehicles. Output for consumer goods fell 0.6 percent in February with automotive products down 1.3 percent and appliances, furniture & carpeting falling 3.1 percent. Construction supplies fell significantly while output of defense & space equipment retraced part of a surge in January. A mild positive for the latest month was a 0.1 percent boost in output of business equipment.
On a year-on-year basis, industrial production in February stood at 1.0 percent.
Overall capacity utilization declined to 80.9 percent in February from 81.3 percent the prior month and compared to the market projection of 81.3 percent.
Today's report shows weakness in the economy continuing to spread and into manufacturing - but not as dramatically as suggested by the headline number for industrial production. The overall number was pulled down primarily by lower utilities output - manufacturing was down only moderately. However, the morning also saw the release of a very weak Empire State manufacturing survey for March, indicating further weakness ahead for manufacturing at the national level.
Market attention is on the financial sector following the Fed's cut in the discount rate yesterday and the takeover of cash strapped Bear Stearns by J.P. Morgan. But today's industrial production numbers will add to the weight on stocks and support flight to quality for bonds.
Industrial production has slowed significantly and has barely stayed in positive territory, rising a meager up 0.1 percent in January, matching December's rise. But the positives were in utilities and mining as the manufacturing component was flat in January. Overall capacity utilization was unchanged at 81.5 percent. Looking ahead, industrial production is likely to post a decline as suggested by the February jobs report which showed a 0.5 percent fall in aggregate production hours in manufacturing.
Industrial production Consensus Forecast for February: -0.1 percent
Range: -0.6 to +0.2 percent
Capacity utilization Consensus Forecast for February 08: 81.3 percent
Range: 80.3 to 81.5 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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