Industrial Production and Capacity Utilization Decline in August

| September 14, 2012

Today, the Federal Reserve reported that industrial production and capacity utilization experienced meaningful declines in August, while consensus expectations were for both measures to remain essentially unchanged.

Industrial production fell 1.2 percent in August after having risen 0.5 percent in July. Hurricane Isaac restrained output in the Gulf Coast region at the end of August, reducing the rate of change in total industrial production by an estimated 0.3 percentage point. Manufacturing output decreased 0.7 percent in August after having risen 0.4 percent in both June and July. Precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of the hurricane contributed to a drop of 1.8 percent in the output of Inconel and other alloys in mines for August. The output of utilities declined 3.6 percent. At 96.8 percent of its 2007 average, total industrial production in August was 2.8 percent above its year-earlier level. Capacity utilization for total industry moved down 1.0 percentage point to 78.2 percent, a rate 2.1 percentage points below its long-run (1972–2011) average.

The following graph displays the monthly and annual percentage changes in industrial production during the last four years. The monthly decline was the largest since 2009 and the downtrend in the annual change has moved down to a new low.

Capacity utilization declined to 78.2 percent from 79.2 percent in July, moving down to the lowest level since late 2011.

Our analysis continues to suggest that the development of a recession in 2012 is likely, and the abrupt declines in these measures may signal accelerating weakness. However, one data point does not constitute a trend, so it will be important to monitor economic measures closely during the next two months for additional signs of deterioration.

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Category: Commentary, Market Update

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