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 5/15/08 For Apr 2008 | |||||||||||||||||||||||||
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Highlights
Industrial production in April fell worse than expected with weakness widespread, pointing clearly to a contraction in manufacturing even after special factors are discounted. Overall industrial production dropped 0.7 percent in April, following a 0.2 percent gain the prior month. The latest number was worse than the consensus estimate for a 0.3 percent decrease. The manufacturing component also dropped - by 0.8 percent after no change in March. Utilities output fell in April while mining output advanced 0.3 percent. A special factor did make the April figure a sharp decline. The overall April decline was led by an 8.2 percent drop in motor vehicles & parts and was due in large part to a strike and parts shortages. But excluding motor vehicles & parts, output dropped 0.4 percent, following a gain of the same magnitude the prior month. Declines were broad-based.
The manufacturing component decline of 0.8 percent was based on broad-based weakness - not just in the auto industry. Declines were also seen in wood products, nonmetallic minerals, fabricated metals, machinery, electrical equipment, furniture, textiles, paper, printing, chemicals, and rubber & plastics. Gains were seen in primary metals, computers & electronics, aircraft, and petroleum products.
On a year-on-year basis, industrial production in April slowed to up 0.2 percent from up 1.4 percent the prior month.
Overall capacity utilization fell to 79.7 percent from 80.4 percent in March and compared to the market forecast for 80.1 percent.
Today's report shows the manufacturing sector in a mild contraction - although one can expect a post-strike rebound in motor vehicles to temporarily put production in positive territory. Overall production has fallen in two of the last three months. With housing still depressed and manufacturing now slipping, only the services sector is working to keep the economy out of recession. It likely will be a close call as to whether the second quarter is negative or not.
The bond market should like the numbers while equities will not like the unexpected weakness.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production appeared to stabilize in March but this sector is likely to lose ground in April. With help from utilities and mining, overall industrial production rebounded 0.3 percent in March, following a 0.7 percent drop the prior month. But the manufacturing component was not as strong with only a modest 0.1 percent rise in the latest month. March strength was in utilities and in mining which jumped 1.9 and 0.9 percent, respectively. More recently, the latest employment report showed a 1.2 percent drop in aggregate hours for manufacturing, which strongly suggests a drop in manufacturing output for the month.
Industrial production Consensus Forecast for April: -0.3 percent
Range: -0.7 to +0.2 percent
Capacity utilization Consensus Forecast for April 08: 80.1 percent
Range: 79.8 to 80.4 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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