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Economy in Brief

U.S. Factory Output Down Sharply Again in January; Off 10.0% Y/Y
by Tom Moeller February 18, 2009

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.

INDUSTRIAL PRODUCTION (SA, %) January December Y/Y 2008 2007 2006
Total Output -1.8 -2.4 -10.0 -1.8 1.7 2.2
   Manufacturing -2.6 -2.9 -12.8 -2.5 1.7 2.4
     Consumer Goods -1.8 -2.0 -7.9 -2.2 1.7 0.3
     Business Equipment -3.7 2.4 -10.9 -1.3 3.3 10.4
     Construction Supplies -3.4 -4.1 -16.7 -6.2 -2.5 2.2
  Utilities 2.7 -0.2 1.4 0.5 3.3 -0.6
Capacity Utilization 72.0 73.3 81.0 (Jan.'08) 78.2 81.0 80.9
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