October Industrial Production

America produced fewer physically made goods in October according to the Federal Reserve’s Industrial Production report.  This indicator fell 0.1 percent after an increase of 0.8 percent in September (revised lower from 1.0 percent).  Two out of the three components declined in the period.  Capacity utilization also fell in October.

Despite the lower headline figure, details within the report were not awful.  Manufacturing, the largest component of the indicator, rose 0.2 percent in the period after improving by the same percentage a month earlier.  It was led by non-durable output growing 0.3 percent.  Durable wares were set back by a decline in vehicle assemblies which fell 400,000 units to an annualized tally of 11.1 million.  Mining output, falling 0.6 percent, may have been hurt by lower petroleum costs.  As crude oil prices fell, some wells were no longer profitable and therefore, at least temporarily, shut down.  Utilities gave back some of their 4.2 percent weather related surge in the prior period, dropping 0.7 percent.

Capacity utilization fell in the period.  Dropping from 79.3 to 78.9, some of the decrease can be explained by firms adding to their capacity.  Firms have accelerated their investment for eight consecutive months.  Our nation’s capacity has grown over 3.0 percent on a year-over-year basis for the first time in the current recovery which officially began in June 2009.  Significantly, the trend in capacity has been favorable as the year-over-year increase accelerated in each of the last 13 months; firms are investing.

Industrial Production is another of Atlas’ indicators pointing to an improving economy.  Firms are confident enough of future prospects  to invest in their means of production.  This keeps capacity from becoming stressed, which helps keep inflation at bay.  For now it appears that America’s economy remains in a virtuous cycle.         (by C. Cox)