Econoday Report: Industrial Production August 14, 2009

2009 Economic Calendar

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Industrial Production

Released on 8/14/2009 9:15:00 AM For July, 2009

	Prior	Consensus	Consensus Range	Actual
Production - M/M change	-0.4 %	0.6 %	-0.3 % to 1.5 %	0.5 %
Capacity Utilization Rate - Level	68.0 %	68.5 %	67.8 % to 69.5 %	68.5 %

Highlights
Industrial production in July added to the argument that the recession is over, rebounding primarily on motor vehicle assemblies. Overall industrial production in July jumped 0.5 percent, following a revised 0.4 percent decline in June. The July boost came in just under the market expectation for a 0.6 percent gain. The manufacturing component posted a 1.0 percent increase after contracting 0.6 percent in June. In the latest month, utilities dropped 2.4 percent while mining output rebounded 0.8 percent. Within manufacturing, the comeback was led by motor vehicles & parts which jumped 20.1 percent after slipping 2.4 percent in June. Auto manufacturers are finally boosting production after GM and Chrysler emerged from bankruptcy. Nonetheless, manufacturing ex autos rose 0.2 percent after a declining 0.5 percent in June.

Overall capacity utilization in July improved to 68.5 percent, rising from a revised record low of 68.1 percent in June. The July rate matched the consensus forecast.

On a year-on-year basis, industrial production improved to down 13.1 percent in July from down 13.6 percent the prior month.

Today's report is another indication that the recession has ended. However, after discounting motor vehicles, the turnaround still appears to be sluggish. But soft growth is still better than further decline. Equity futures slipped on this report as traders were hoping for an even stronger boost in July.

The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

Market Consensus Before Announcement
Industrial production fell "only" 0.4 percent in June, following a revised 1.2 percent drop in May. Notably, the important manufacturing component also fell at a less rapid pace, decreasing 0.6 percent after dropping 1.1 percent in May. Overall capacity utilization in June dropped to another record low, declining to 68.0 percent in June from a revised 68.2 percent in May. Looking ahead, the early indicators are mixed. The ISM manufacturing index, Philly Fed index, and Empire State index remain a little below breakeven for July. However, aggregate production hours rose 0.4 percent for manufacturing in July-indicating that at least the manufacturing component of industrial production will be moderately positive. A rebound in motor vehicle employment for July also suggests a boost in motor vehicle production and almost guarantees a rebound in industrial production.

Definition
The index of industrial production is available nationally by market and industry groupings. The major groupings are comprised of final products (such as consumer goods, business equipment and construction supplies), intermediate products and materials. The industry groupings are manufacturing (further subdivided into durable and nondurable goods), mining and utilities. The capacity utilization rate -- reflecting the resource utilization of the nation's output facilities -- is available for the same market and industry groupings.

Industrial production was also revised to NAICS (North American Industry Classification System) in the early 2000s. Unlike other economic series that lost much historical data prior to 1992, the Federal Reserve Board was able to reconstruction historical data that go back more than 30 years. Why Investors Care

The industrial sector accounts for less than 20 percent of GDP. Yet, it creates much of the cyclical variability in the economy.

Data Source: Haver Analytics

The capacity utilization rate reflects the limits to operating the nation's factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84 to 85 percent.

Data Source: Haver Analytics

2009 Release Schedule

Released On: 1/16 2/18 3/16 4/15 5/15 6/16 7/15 8/14 9/16 10/16 11/17 12/15

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