Industrial Production and Capacity Utilization Continue to Disappoint

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The industrial production report is one of those economic reports that can drive a lot of chatter among economists, but the latest report is for the month of October. That makes it a pre-election report, and that should mute some of the impact. The report on manufacturing held up better than total production in October, and this was a second consecutive gain.

Industrial production was flat at 0.0% in October, while Bloomberg was calling for a 0.1% gain. September’s report was revised to a far worse −0.2% from a preliminary 0.1% gain.

This report was skewed if you look at the gains in manufacturing rising 0.2% in October. Still, Bloomberg was calling for a 0.3% gain, and the prior month was a 0.2% gain.

Where things continue to look bleak is on capacity utilization. Total capacity was 75.3% in October, compared with a 75.4% consensus estimate from Bloomberg. The report from September was also 75.4%. These remain far under the actual base-line that would have made for a great economy.

Vehicle production rose by 0.9% in October and was up 5.0% from a year earlier. Mining posted a gain of 2.1%, its largest increase since March 2014, and the index for utilities dropped 2.0%, largely due to warmer than normal temperatures keeping heating demand low.

Capacity utilization for the industrial sector edged down 0.1 percentage point in October to 75.3%, a rate that is 4.7 percentage points below its long-run (1972–2015) average.

More selective data from the Federal Reserve report said:

Automotive products posted a gain for the fifth consecutive month, and the index was about 7 1/2 percent above its year-earlier level. The index for consumer non-energy nondurables was unchanged from its September level, with a gain for chemical products offset by losses for other components; the output of consumer energy products fell 3.0 percent. Business equipment registered a rise of 0.2 percent as a result of an increase for information processing equipment; the indexes for transit equipment and for industrial and other equipment edged down. The output of defense and space equipment decreased 0.3 percent. Construction supplies recorded an increase of 0.6 percent, while business supplies recorded a loss of 0.4 percent. The production of materials moved up 0.2 percent, as a broadly based gain in durable materials outweighed a decline for energy materials; the index for nondurable materials was unchanged.

For capacity utilization, the Federal Reserve broke this out by segment as well. Its report said:

Capacity utilization for manufacturing edged up 0.1 percentage point in October to 74.9 percent, a rate that is 3.6 percentage points below its long-run average. The operating rate for durables rose to 76.2 percent, the rate for nondurables remained unchanged at 74.3 percent, and the rate for other manufacturing (publishing and logging) fell to 61.7 percent. Utilization for mining jumped 1.8 percentage points to 77.0 percent; even so, it remains more than 10 percentage points below its long-run average. The rate for utilities fell 2.1 percentage points to 77.8 percent.