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Economy in Brief

U.S. Factory Production Declines Again While Plant Utilization Reaches A Record Low
by Tom Moeller July 15, 2009

Perhaps the decline in industrial production has moderated this year, but it's tough to say for sure given the very erratic size of the month-to-month declines; big one month, small the next. Last month, industrial output which includes mining and utilities declined 0.4%. The drop was somewhat less than expected but it followed a large 1.2% May shortfall. That's been the monthly pattern this year. Nevertheless, so far output has declined at a 13.2% annual rate which is near this cycle's worst rate of decline reached last January of -17.8%.

Output of consumer goods overall slipped just 0.3% during June but the rate of decline in 2009 amounted to 8.0%, near the worst for the cycle. Last month, production of autos fell 2.7% following the 8.2% May decline. Furniture output also fell a hard 0.7% and at a 19.7% rate in 2009 as consumers continue to defer purchases of large durable goods. Apparel output fell a whopping 4.9% and it's down at a 21.7% rate this year while output of business equipment fell 0.8%. The 23.9% six-month rate of decline here is the worst since 1958. The output of construction supplies fell just 0.1% but this year it's down at an 18.0% rate, versus -31.2% at its weakest.

In the the high-tech sector the rate of decline in output also has slowed ... maybe. Industrial production fell 1.0% last month and at a reduced 9.8% rate for all of this year. Less high tech, overall industrial production fell a reduced 0.3% last month and the annual rate of change eased to -13.3% over the last six months.

Outside of the auto and high-tech sectors, output declines also have yet to moderate much. Here output fell 0.3% last month and at an 11.6% rate this year. That's against the worst six-month rate of decline recently reached of -14.9%.

Excess capacity grew even further last month. Capacity utilization fell to a record low of 68.0%. The series dates back to 1966. In the factory sector the figures indicate that there's even more slack. Utilization in the factory sector dropped even harder to 64.6% from a peak near 80% back in 2007. The latest rate was a record low since WW II.

The industrial production data are available in Haver's USECON database.

INDUSTRIAL PRODUCTION (SA, %) June May Y/Y 2008 2007 2006
Total Output -0.4 -1.2 -13.6 -2.2 1.5 2.3
   Manufacturing -0.5 -1.2 -15.5 -3.2 1.4 2.5
     Consumer Goods -0.3 -1.0 -7.9 -2.6 0.9 0.4
     Business Equipment -0.8 -1.9 -17.8 -1.1 2.7 9.4
     Construction Supplies -0.1 -0.4 -20.6 -6.3 -2.0 2.3
  Utilities 0.7 -1.3 -3.9 0.3 3.4 -0.6
Capacity Utilization 68.0 68.2 78.7 (June '08) 77.6 80.6 80.9
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