Industrial Production Flat in October

After a period of slowdowns, U.S. industrial output stabilized in October, remaining relatively unchanged last month as major declines in utility production offset gains in manufacturing.



Industrial production in the United States remained unchanged in October, following a 0.2 percent decrease in September and 0.2 percent growth in August, according to the U.S. Federal Reserve‘s latest industrial sector report. Although seasonal factors continue to affect output, the halt in month-to-month decline signals stabilizing conditions for the business climate, particularly in the manufacturing industries.

At 93.4 percent of its 2007 average, total industrial production in October was 5.3 percent above its year-ago level. Capacity utilization, a measure of how much industrial production capabilities are being used, remained at 74.8 percent, the same as in September but 5.8 percentage points above the average from 1972 to 2009.

The Fed report, released yesterday, indicates that slowdowns in mining and utilities offset gains made in other industries last month, resulting in the unchanged rate of production between September and October.

Output of utilities fell 3.4 percent in October, largely due to unseasonably warm temperatures that cut down demand for heating, while mining production dipped 0.1 percent. Utilities fell 2.6 percent below the production level of October 2009, but mining remained 7.5 percent above its prior-year level. Declines in utilities output were led by electric production, which fell for the third consecutive month, and natural gas production, which decreased for the second month in a row. Capacity utilization for utilities fell 2.8 percentage points to 76.6 percent.

Manufacturing, which accounts for the largest portion of industrial output, posted 0.5 percent growth in October, due to stronger performance in steel, fabricated metal products, machinery and chemicals production. Last month’s production was 6.1 percent higher than the October 2009 level. Manufacturing production also expanded 0.1 percent in September.

“Factories are the largest single component of industrial production. They helped lead the economy out of recession, but have grown more slowly in recent months,” the Associated Press reports. “October’s solid gain eased fears that the manufacturing recovery could stall, weighing down the broader economy.”

Production of consumer durable goods rose 0.8 percent in October, led by automotive products, appliances and furniture, while non-durable consumer goods fell 0.2 percent. Business equipment production increased 1.1 percent, climbing to 10.4 percent above the prior-year level. Transit and defense equipment each rose 0.7 percent, reversing declines from the previous two months.

Durable goods output rose 0.9 percent last month, posting increases in most product categories. Production of wood products, nonmetallic mineral products and electrical equipment, appliances and components all increased by more than 2 percent. Non-durable goods manufacturing rose 0.2 percent, led by apparel and leather products. Capacity utilization among manufacturers increased from 72.3 percent in September to 72.7 percent in October, but remained 0.3 percent below the prior-year level.

“The October report shows that the manufacturing recovery is on a solid footing and continues to grow faster than the economy as a whole,” Daniel J. Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, said in an analysis of the Fed data. “There were widespread gains made in manufacturing as 15 of the 20 major manufacturing industries posted growth in October.”

Experts believe that improvements in material supplies may yield stronger overall growth in industrial production in the coming future, as material shortages earlier in this year drove up imports while hindering exports and domestic demand.

“Now that material availability is less of a concern, exports are playing a more important role in industrial demand,” Meckstroth explained. “In addition, long postponed replacement of consumer durables and business equipment has created pent-up demand that is driving above average growth in factory production.”

Although the month-to-month declines have stopped, it remains to be seen how industrial production — and manufacturing in particular — will perform through the quarter. After expanding at a 9.1 percent annual rate in the second quarter, manufacturing output fell to a 3.6 percent annual rate in the third quarter.

Earlier

Industrial Production Falls in September

Industrial Production Inches up in August

Resources

Industrial Production and Capacity Utilization
U.S. Federal Reserve, Nov. 16, 2010

Industrial Production Flat in Oct.; Factories Hum
The Associated Press, Nov. 16, 2010

MAPI Analysis on Industrial Production: Manufacturing Recovery on ‘Solid Footing’
The Manufacturers Alliance/MAPI, Nov. 16, 2010

Weak Utilities Keep October Industrial Output Flat
by Emily Kaiser
Reuters, Nov. 16, 2010

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