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Economy in Brief

Industrial Production Increases Less than Expected, But Factories Regain Some Vigor
by Carol Stone August 17, 2004

Industrial production recovered in July after its June fall. However, the 0.4% gain was less than the 0.5% market forecasters had looked for, and June itself was revised lower, from a 0.3% decline to a 0.5% decline.

The hints of softness in the production data are concentrated in utilities. Mild weather yielded a 2.5% fall in utility output in June and another 2.1% in July. Production in the important factory sector rebounded 0.6% last month after a 0.2% fall in June.

Output of motor vehicles stabilized after following sizable declines in May and June. The high tech sector continued to expand with some vigor; relatively slower growth occurred in March and April, 1.3% and 1.5%, respectively, but the last three months have averaged 2.5% each. Accompanying the lower utility output, energy producers saw their output reduced by 0.6% after a 1.7% drop in June. Other industries' (excluding energy, motor vehicles and high tech) production moderated in July to a 0.3% rise from 0.4% in June. It is evident visually in the graph that US industry has become more economical in its use of energy. Over the 37-year history of the energy data, that output has increased at a 1.5% annualized rate, as total industry has expanded at a 2.7% pace, a "productivity" difference of 1.2 percentage points. However, over the last 15 years, energy output has been slower, at 1.1%, even as total industrial output has picked up to a 2.9% rate, reflecting a larger "productivity" of 1.8 percentage points.

Total capacity utilization increased to 77.1%, although the downward revision to June means that the July increase leaves utilization still below the 77.2% originally calculated for June. Growth in capacity continued at 1.3% y/y.

Production & Capacity July June Y/Y 2003 2002 2001
Industrial Production 0.4% -0.5% 4.9% 0.3% -0.6% -3.4%
Capacity Utilization 77.1% 76.9% 74.5%(7/03) 74.8% 75.6% 77.4%
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