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 6/17/08 For May 2008 | |||||||||||||||||||||||||
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Highlights
Industrial production in May unexpectedly fell but the decline was primarily due to a drop in utilities output. But the bottom line still is that the manufacturing sector is flat. Overall industrial production fell 0.2 percent in May, following a 0.7 percent decline in April. The May production decrease was below the consensus forecast for a 0.1 percent uptick. The manufacturing component was flat, after falling 0.9 percent in April. Utilities output dropped 1.8 percent in the latest month while mining output edged up 0.1 percent. Manufacturing actually was supported by a 1.0 percent partial rebound in production of motor vehicles as striking workers returned. But the impact on overall manufacturing was slight. Manufacturing excluding motor vehicles slipped 0.1 percent after dropping 0.5 percent in April.
Within manufacturing, both durables and nondurables were unchanged for May. But there were winners and losers. By industry, notable gains were seen in electrical equipment, motor vehicles, and chemicals. Notable weakness was seen in wood products, machinery, and apparel.
On a year-on-year basis, industrial production in May eased to down 0.1 percent from up 0.1 percent in April.
Overall capacity utilization in May slipped to 79.4 percent from 79.6 percent the prior month and compared to the market forecast for 79.7 percent.
Today's report continues to show a flat manufacturing sector. But markets are focusing on better-than-expected earnings reports - notably with Goldman Sachs' profits being down less than expected. Nonetheless, we had reports on two key sectors - housing and manufacturing - showing a very sluggish economy and one with rising inflation pressures. The Fed certainly has a quandary about interest rate policy.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
Industrial production dropped 0.7 percent in April, following a 0.2 percent gain the prior month. 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. In a special factor, 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 fell 0.4 percent, following a gain of the same magnitude the prior month. Looking ahead, we are likely to get a little help from a rebound in auto production as striking workers have returned to work. But outside of exports, demand is sluggish.
Industrial production Consensus Forecast for May: +0.1 percent
Range: -0.4 to +0.3 percent
Capacity utilization Consensus Forecast for May 08: 79.7 percent
Range: 79.3 to 80.0 percent
![[Chart]](chart.gif)
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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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