Industrial Production & Capacity Utilization Weak in September

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With it being an election year, it is not unusual to hear the politicians talk up the need for U.S. companies to build the factories of the future. There is just one major problem getting in the way. Businesses and factories just are not using anywhere near enough of the capacity that they already have in-hand without spending one dollar more on capital spending.

The U.S. Federal Reserve has released its look at industrial production and capacity utilization for September. The Fed showed that industrial production itself rose a mere 0.1% in September. Both Bloomberg and Dow Jones were predicting a gain of 0.2%. Where things get worse is in the revisions. August was revised a tad worse, down to −0.5% from the −0.4% originally projected.

Perhaps the only good news here is that the manufacturing change on a month-over-month basis was up 0.2%. That was expected to be up by 0.1% for September by the Bloomberg estimate. Still, the August reading was revised to −0.5% from the −0.4% original figure.

On the mystical capacity utilization, this reading had tried to improve but it remains quite weak. Total capacity utilization was 75.4% in September, shy of the consensus estimates of 75.6% from Bloomberg and Dow Jones. This is actually reflected as a 0.1% gain from the August reading, but that is because August was revised down to 75.3% from the 75.5% original figure. Note that the trend for the past three months in a row is for capacity to be revised lower.

Where things start to get a bit skewed is that the big drop in capacity is not coming from manufacturing or mining. The drop came from utilities, with a 0.9-point drop outweighing a 0.5 point gain in mining and a 0.1-point gain in manufacturing. Before getting too cozy about a 0.1-point manufacturing gain, that reading is still under 75% (74.9%).

In the market groups, the Fed showed the following breakdowns:

  • The output of consumer goods rose 0.2 percent in September.
  • The production of consumer durables advanced 0.6 percent, with nearly all of its major components recording increases.
  • The index for consumer non-energy nondurables moved up 0.2 percent, reflecting gains for chemical products and clothing, but the output of consumer energy products dropped 1.0 percent.
  • Business equipment posted a decline of 0.2 percent as a result of decreases for both transit equipment and information processing equipment.
  • The output of defense and space equipment moved down 0.4 percent.
  • Construction supplies and business supplies each recorded an increase of about 3/4 percent in September that partially reversed a larger loss in August.
  • The production of materials fell 0.2 percent in September, as declines in durable materials and energy materials outweighed a gain for nondurable materials.
  • The decrease for durable materials reflected reductions for both consumer parts and equipment parts.
  • The improvement for nondurable materials was broadly based.