September Industrial Production

Industrial Production expanded in September after a flat report in August according to the Federal Reserve.  Originally growth was recorded for August but a revision to the figures concluded the month was unchanged while July’s count was adjusted higher.  Over all, industrial production has been in an uptrend recently and is now up in 4 out of the last 5 months.

Manufactured consumer goods production improved, led by the automotive industry followed by home electronics.  These are durable items expected to last longer than 3 years and tend to be more expensive, so it suggests manufacturers feel individual Americans are showing some signs of confidence despite what the consumer attitude surveys have been saying.  The automotive and light truck annualized rate of production has been higher than 2010’s run rate in each of the last three months.  Producers also seem to feel companies are likely to continue spending as business equipment output grew by 1 percent.

Capacity Utilization has been increasing but is still below its long-term average.  One area within the economy which is above its long-term trend is at the crude stage of manufacturing.  The demand for raw materials has pushed processors to use 88.8 percent of their capacity which is 2.4 percentage points above the average seen from 1972-2010.  Unless capacity is added for the production of raw materials, this stage of manufacturing is susceptible to rising price pressures.

The industrial production portion of our economy continues to hum along at a reasonable pace despite America’s otherwise tepid recovery.  Another manufacturing indicator, this one from the Institute for Supply Management, has recently flashed a warning sign in the relationship between new orders and inventories, so Atlas will continue to monitor industrial production to see if a slowdown manifests to correct a growing inventory glut within a waning demand environment.  While hoping for a pickup in orders, we are preparing for something short of that scenario.