·
The U.S. factory sector remained severely depressed last month.
Industrial production during January fell 1.8% after the 2.4% drop
during December which was revised deeper from the initial report. Last
month's decline about matched Consensus expectations for a 1.5% decline.
· Year-to-year output is off 10.0%, the sharpest decline since early 1975. Reduced domestic demand, inventory cutbacks and recessions abroad have combined to lower overall U.S. production like it never has. And downward momentum has gained steam.
· An acceleration in that downward momentum is apparent in the 19.7% annual rate of output decline during the last three months. But that understates the severity of the shortfall because mining and utility output is up. In the factory sector alone, output is off at a 26.7% annual rate during the last three months versus a modest 2.6% drop during all of last year.
· Output of construction
supplies has fared the worst. A 3.4% drop in production last month
lowered the three-month rate of decline to 37.3% following the 6.2% drop
during all of last year. Output of consumer goods fell 1.8% last month
and the three-month rate of change accelerated to -17.2%. That was
accentuated by a 77.5% three-month annual rate of decline in the output
of motor vehicles & parts. That came on top of a 14.5% decline
during all of last year. Outside of the auto sector, output also was
hard hit. Production of furniture fell at a 28.0% during the last three
months while apparel output fell at a 29.2% rate. Production of business
equipment resumed its downward trend last month with a 3.7% decline
which reversed two months of increase.
· Industrial production in the high-tech sector fell 3.2% last month capping a 12.8% year-to-year decline. Less that downdraft in high tech, overall industrial production fell 2.6% last month and the annual rate of change of -13.7% was the weakest since 1975.
· Outside of output declines in autos and high tech, total production which includes mining and utilities fell 0.9% last month and the three-month annual rate of decline accelerated to -13.9%. The rate of decline in factory sector output less these two sectors accelerated to -20.7%.
· Excess capacity continued to grow last month. Capacity utilization fell to 72.0%, the lowest level since 2003. Utilization in the factory sector dropped even harder to 68.0% from a peak near 80% back in 2007. Capacity in the factory sector increased a somewhat reduced 1.4% (y/y).
· The industrial production data are available in Haver's USECON database.
· The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions and Policy Responses from the Federal Reserve Bank of St. Louis can be found here.