A Bloomberg survey had expected industrial production to rise 0.2% in September after a 0.2% gain in August. Industrial production rose 0.7% in July, 0.1% in June and 1.1% in May. That same survey also had expected the capacity utilization rate to remain unchanged at 74.8%.
September's industrial production decline was concentrated in utilities and manufacturing. Output at utilities -- which typically falls after the peak summer air-conditioning season passes -- plunged 1.9%, and manufacturing output declined 0.2%. Mining output rose 0.7%.
A Mild Disappointment
The industrial production and capacity utilization data are closely watched because even though manufacturing accounts for less than 20% of U.S. GDP, it accounts for a considerable portion of the nation's cyclical growth. Also, continual declines in production point to a softening economy. Rising output indicates the reverse. A low capacity utilization rate usually reflects softer demand, while high rate means strong demand, with the potential for increased inflation.
September's dip in industrial production is a mild disappointment. Manufacturing was expected to slow in the second quarter, as inventory rebuilding waned, but the 0.2% decline in September was larger than expected.
Still, one month is not enough to suggest a change in the generally positive long-term story of expansion in industrial production. If international demand remains strong -- and a weaker dollar should help American manufacturers like Boeing (BA), Caterpillar (CAT) and Alcoa (AA) with large foreign sales -- industrial production will more than likely resume its uptrend in the months ahead.