Factory Production – Widespread Declines Add Factory Sector to Watch List
Industrial production fell 0.5% in October after a 0.2% increase in September. Readings of August and September were raised slightly. Factory production dropped 0.4% in October following a 0.1% increase in September. Production at the nation’s utilities declined 1.6% in October. The ISM manufacturing survey showed a deceleration in growth during October (50.9 vs. 52.0 in September). The October factory production data differ from the ISM survey of October to the extent that there are widespread declines in production. Factory production appears to have peaked in July 2007.
Against the background of weak economic data such as the industrial production report and latest weekly initial jobless claims, Fed officials seem persistent about standing pat at the December meeting. Governor Kroszner noted in his speech this morning that “looking further ahead, the current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate,” implying a reluctance to lower the federal funds rate on December 11. St. Louis Fed President William Poole, voting member of the FOMC, also indicated this morning that a sharper than expected slowdown in economic growth would be necessary to bring about a rate cut in December.
Total capacity utilization was 81.7% in October, down from 92.2% in the prior month. The operating rate of the factory sector was 80.1% in October, down from a cycle peak of 81.0% in July.
Factory production excluding motor vehicles and parts declined 0.3% but high-tech production rose 0.5%. Factory output excluding high-tech and motor vehicles and parts fell 0.4%. From other details of the report, production of wood products (-2.6%), fabricated metal products (-0.5%), machinery (-0.8%), electrical equipment, appliances, and components (-1.2%), motor vehicles and parts (-1.0%), and furniture (-0.1%) dropped in October. Output of non-durables declined 0.4%, reflecting reductions in the production of food and beverages, tobacco, apparel, and leather.
