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Economy in Brief

IP Trend Turns Higher
by Robert Brusca September 16, 2009

Output and capacity: IP rose by 0.8% in August and manufacturing capacity rose for the second month in a row. For MFG, utilized capacity is just at 66.6% barely two thirds of the capacity put in place. However, even going back to the overheated sixties when capacity use rates were higher, capacity utilization has never triggered a reading above 91.6. Still, it’s a lot of capacity that is left unused and the economy is not exactly scooping up the excess at a rapid rate. Manufacturing capacity use rose from 65.1 in June to 66.1 in July and to 66.6 in August.

Manufacturing: Manufacturing output rose by 0.6% in August lead by a 0.7% gain in nondurable goods. But durable good output rose by 0.4% and that was on top of a gain of 1.4% the month before that, implying a bit more momentum.

By sector: Consumer goods output rose, led by the output automobiles and products. Business equipment output rose led by the key transportation sector. Materials output rose led by output in the energy sector, although nondurables goods ex-energy output also moved up strongly in the month. Consumer goods business equipment and materials output all are up for two months running.

Caution about the impact of this strong growth on GDP: In the quarter to date, with two of three-month’s data in place, industrial output is up at a 3.4% pace and MFG output is up at a strong 5.7% pace. While these are strong numbers let me caution you that IP figures do not easily translate into GDP growth. You have treat the IP report as if it is an ‘indicator.’ We measure GDP in the United States from the expenditure side not from the output side and so the IP report per se does not feed into GDP. One clear issue is that the IP report uses different seasonal factors and they are real different for the auto sector. Still, taken and an indicator, the fact that IP is growing at a 3.4% annual rate and MFG at a 5.7% annual rate suggests that there is a lot of life to GDP. We would expect to find this output either sold to US consumers, bought by US businesses, sold overseas as exports or sitting on shelves as inventories (…although inventory data are so weak that the last option seems less likely and is more there for the sake of completing the taxonomy of options). So while that accounting is correct what GDP finds may be different from what IP implies.

What’s still weak? What is still weak in the third quarter is consumer goods output excluding autos as that metric has output falling at a 4.2% pace in Q3; the output of consumer energy goods also is falling at a pace of 12.3% in Q3. In the business sector, the output of computers and office equipment is falling in Q3 and in the materials sector, the output of energy products is falling.

But by and large the strength in the industrial sector is impressive and its momentum into Q3 appears to be quite solid.

Industrial Production
  Monthly Pct. Changes At Annual Rates of Change SAAR
  Month-to-month Pct. Change 3-Month 6-Month Year/Year 09-Q3
Industrial Output Aug-09 Jun-09 Jul-09 %Change %Change %Change Pct Change
All Production & Materials 0.7% 0.9% -0.9% 2.9% -3.8% -10.8% 3.4%
All Products 0.8% 0.8% -0.8% 3.3% -3.6% -8.9% 3.2%
Final Products 1.1% 0.9% -0.9% 4.4% -3.3% -7.3% 3.7%
Manufacturing only
MFG 0.6% 1.4% -1.4% 2.5% -2.9% -12.2% 5.7%
MFG-Durables 0.4% 3.2% -3.1% 1.7% -4.7% -17.7% 11.0%
MFG-Nondurables 0.7% -0.1% 0.1% 2.9% -0.2% -6.2% 1.4%
Consumer Goods 1.3% 0.7% -0.7% 5.4% -0.6% -4.2% 4.1%
Durables 2.0% 7.8% -7.3% 8.1% 10.8% -13.0% 38.4%
Automotive Products 5.8% 17.2% -14.7% 23.3% 38.0% -8.1% 113.6%
Excl Automotive Products -1.3% 0.6% -0.6% -5.3% -10.0% -17.3% -4.2%
Nondurables 1.2% -0.8% 0.8% 4.7% -3.0% -1.9% -2.4%
Nonenergy 1.2% -0.4% 0.4% 4.7% -1.0% -2.8% 0.8%
Consumer Energy 0.9% -2.0% 2.0% 3.4% -9.5% -0.4% -12.3%
Business Equipment 0.6% 1.0% -1.0% 2.2% -10.6% -14.7% 1.4%
Transportation 2.4% 4.4% -4.2% 9.4% -5.7% -15.4% 20.7%
Computer & Office Equipment -1.2% -1.2% 1.2% -4.7% -19.6% -23.8% -16.3%
Excl Technology Transport 0.4% 0.5% -0.5% 1.6% -13.0% -14.2% -2.2%
Materials 0.5% 1.3% -1.3% 2.1% -4.3% -13.1% 4.0%
Durables 0.0% 3.5% -3.3% 0.0% -9.1% -23.8% 9.3%
Nondurables excl Energy 0.8% 0.2% -0.2% 3.0% 3.7% -8.7% 5.6%
Energy 1.1% -0.2% 0.2% 4.5% -6.3% -4.8% -3.0%
Actual Auto Production Levels
Month-to-month Pct. Change 3-Month 6-Month Year/Year 09-Q3
Vehicle Production Aug-09 Jun-09 Jul-09 %Change %Change %Change Pct Change
Autos 55.9% -7.0% 7.5% 223.6% 111.1% -31.4% 164.0%
Trucks 37.1% 10.9% -9.8% 148.5% 47.0% -8.1% 121.8%
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