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US Industrial Production Rises on Factory Expansion

Posted by Joseph Trevisani on Oct 17, 2016 1:48:53 PM

The output of America's factories mines and utilities rose for the third time in four months powered by a recovery in factory production.

Industrial output climbed 0.1 percent in September as forecast, reversing August's 0.5 percent drop, initially reported at -0.4 percent, said the Federal Reserve in Washington, D.C. Monday.  

The improvement was driven by a 0.2 percent increase in factory goods, also on forecast. Manufacturing makes up about 75 percent of overall U.S. industrial production. It was the third gain in four months as well

On the year industrial production fell 1.03 percent in September after decreasing 1.34 percent in August.  This was the thirteenth negative month in a row, the longest non-recessionary streak in U.S. history. 

Factory output has been very uneven for the past two years. In the 21 months from January 2015 there have been ten months with a gain in factory output and eleven with a drop. Overall industrial production has fallen in 14 of the last 21 months. 

Manufacturing, which comprises between 12 and 15 percent of the economy, has been inhibited by several factors this year and last. A strong dollar and weak global demand have reduced exports and the steep fall in crude oil prices has induced a prolonged slide in investment in oil field exploration, development and related industries.Though this has largely abated energy investment has not returned to its prior levels.

Consumer spending has remained relatively healthy. The 0.6 percent rise in September’s retail sales  reported on Friday was the largest increase since June, though the third quarter average monthly gain of 0.16 percent was a far cry from the prior quarter's 0.7 percent increase per month.   

Mining production, which includes oil drilling and exploration rose 0.4 percent in September after falling 1.0 percent in August. This year mining activity returned to break even, climbing in five months and declining in four, reflecting stabilization in the price of oil and other commodities

In 2015 mining output had decreased in ten of twelve months. From the summer of 2014 to February 2016, the price of a barrel of West Texas Intermediate, the American standard for crude oil fell 75.6 percent from $107.26 to $26.21. The near doubling of the price for a barrel of crude oil since then to $49.87 (1:10 pm 10/17) has helped revive the energy industry.  Oil and gas well drilling output climbed for a fourth month, gaining 5.1 percent in September.

Utility output dropped 1 percent, after a 0.3 percent decline the previous month.

Capacity utilization, which gauges the amount of the nation's industrial plant that is in use each month, rose to 75.4 percent in September from 75.3 percent in the prior month.

Since the post-recession peak in November 2014 at 78.89 the percentage declined had steadily to a low of 74.89 this past March. Utilization has been below 76.0 percent since last November.

Over the 49 year history of this series it has averaged 80.36 percent a month. However, the average has declined in every decade  since the 1980s.  From 1990 to 1999 capacity utilization averaged 82.34, from 2000 to 2009 the average was 77.45 and from 2010 to the present the score is 76.26 percent. 

Consumer goods production, durable and non-durable, rose 0.2 percent in September. The production of business equipment declined 0.2 percent. Machine tool production was down 0.6 percent, while manufacturing of computers and electronics was little changed.

Automobile and vehicle parts production expanded for a fourth month in a row, rising 0.1 percent in September after a 0.9 percent gain a month earlier. Construction materials jumped 0.8 percent after a 1.4 percent drop.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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