October 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) was unchanged in October (+0.1% expected) after decreasing 0.2% in September. Although the level of industrial production in September was the same as the previous estimate, revisions to the index for utilities raised the rate of change in total IP in August and lowered it in September. In October, manufacturing output increased 0.2% (+0.3% expected), and mining posted a gain of 2.1% for its largest increase since March 2014. The index for utilities dropped 2.6%, as warmer-than-normal temperatures reduced the demand for heating. At 104.3% of its 2012 average, total IP in October was 0.9% lower than its year-earlier level.

Industry Groups

Manufacturing output increased 0.2% in October but was 0.2% below its level of a year earlier. The production of durables rose 0.4%, the production of nondurables remained unchanged, and the production of other manufacturing (publishing and logging) fell 0.6%. Most durable goods industries posted increases (e.g., wood products: +1.0%); the only declines were registered by aerospace and miscellaneous transportation equipment and by miscellaneous manufacturing. No major nondurable goods industry recorded a sharp swing in output: Chemicals posted the largest gain, 0.4%, while paper registered the largest decrease, 0.8%.

The index for mining advanced 2.1% in October. Declines in the extraction of crude oil and natural gas were outweighed by gains for most other mining industries, particularly coal mining. 

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Capacity utilization (CU) for the industrial sector edged down 0.1 percentage point in October to 75.3%, a rate that is 4.7 percentage points below its long-run (1972–2015) average.

Manufacturing CU edged up 0.1 percentage point in October to 74.9%, a rate that is 3.6 percentage points below its long-run average; on a NAICS basis, manufacturing rose 0.2% (but -0.7% YoY). The operating rate for durables rose to 76.2% (wood products: +0.6%), the rate for nondurables remained unchanged at 74.3% (paper: -0.6%), and the rate for other manufacturing (publishing and logging) fell to 61.7%. Utilization for mining jumped 1.8 percentage points to 77.0%; even so, it remains more than 10 percentage points below its long-run average. The rate for utilities fell 2.1 percentage points to 77.8%. 

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Capacity at the all-industries level nudged up 0.1% (+0.3% YoY) at 138.4% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 137.9%. Wood products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.6% YoY) to 169.3%. Paper edged down 0.1% (-1.1% YoY) to 116.3%.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.