Weak Industrial Production and Capacity Utilization Reports for August

Industrial production was down by 0.4% in the month of August. Econoday had the consensus pegged for a drop of only 0.2% in August. One issue that may help smooth the impact from this negative reading is that the July figure was revised higher, up to 0.9% from a preliminary gain of 0.6%. That revision was said to be tied to upward revisions for mining and utilities.

Manufacturing output fell 0.5% in August. What stands out here is that the drop was said to be primarily due to a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July. The Federal Reserve also signaled that production elsewhere in manufacturing was unchanged by saying:

The index for mining fell 0.6 percent in August, while the index for utilities rose 0.6 percent. At 107.1 percent of its 2012 average, total industrial production in August was 0.9 percent above its year-earlier level.

Capacity utilization for the industrial sector was down by 0.4 percentage points in August to 77.6%. Econoday was calling for a reading of 77.8%, down from a 78.0% reading in July. This is said to be 2.5 percentage points below its long-run average.

Again, capacity really matters here. With an election ahead, politicians blast companies for paying executives or for not building more new factories and plants and for not hiring new workers. The problem is that it is hard to expect companies to go out and hire generously when they are running handily under 80% capacity.

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