U.S. Industrial Production is Unexpectedly Weak

Momentum previously evident in industrial output growth has been lost. That's again the message from the report on production which fell last month. The decline compared to an expected 0.2% gain, and reversed an unrevised 0.2% August increase. Moreover, tepid performance during the last two months stand in sharp contrast to increases between 0.5% and 1.5% extending back to July of last year. Lost momentum is clear in output's three-month growth rate. It's fallen to 2.6% from its peak of 14.3% one year ago. Some of the slowdown was to be expected following the usual spurt in output following a recession. The difference between the recent slowdown and others, however, is that initial gains coming out of recession were less substantial than others in terms of magnitude and duration. Following the 1981-82 recession, for example, industrial production grew at a double digit rate for roughly one year before decelerating.

Factory sector output alone slipped 0.1% during September after an unrevised 0.1% August uptick. The consumer goods sector was the weakest. Here, output fell 0.4% after a 0.5% August decline. Output's decline reversed all of a 1.0% July spurt and the zero-percent three-month growth rate compares to 17.4% one-year ago. Weakness was led last month by lower durable consumer goods production. It fell 1.0% (+4.3% y/y) which owed to a 1.9% drop (-0.1% y/y) in appliance, furniture and carpeting output. Auto output also fell 0.9% (+5.1% y/y) but output of computers, video & audio equipment rose 0.6% (-3.0% y/y). Nondurable goods output slipped 0.2% (+2.8% y/y).

Capacity utilization overall ticked lower to 74.7% but remained well above last year's low of 68.2%. A 74.8% September rate had been expected. The factory sector utilization rate, alone, slipped to 72.2%. The increase here is from the low of 65.4% during the recession. But the figures continue to paint a picture of abundant unused productive capacity. The latest rates compare to roughly 80% just before the recession and a fifty year average also of 80%. Industrial production and capacity data are included in Haver's USECON database, with additional detail in the IP database.

Industrial Production (SA, % Change)	September	August	July	Year Ago	2009	2008	2007
Total Output	-0.2	0.2	0.6	5.4	-9.3	-3.3	2.7
Manufacturing	-0.1	0.1	0.7	5.5	-11.1	-4.5	2.9
Consumer Goods	-0.4	-0.5	1.0	3.2	-5.8	-4.2	0.9
Business Equipment	0.1	0.3	1.1	10.1	-12.2	-1.5	4.5
Construction Supplies	-0.8	1.0	-0.5	5.3	-16.7	-9.5	-1.2
Materials	0.0	0.5	0.5	6.4	-9.7	-2.7	3.7
Utilities	-1.9	-1.4	0.9	2.7	-2.6	-0.1	3.4
Capacity Utilization (%)	74.7	74.8	74.7	70.5	70.0	77.9	81.3
Manufacturing	72.2	72.3	72.2	68.1	67.2	75.0	79.6