Thursday, February 15, 2007

Industrial Production Drops .5%

From the Federal Reserve:

Industrial production decreased 0.5 percent in January after an increase of 0.5 percent in December. Output in the manufacturing sector declined 0.7 percent in January; about one-half of the decrease was a result of a drop of 6 percent in motor vehicles and parts. The output of utilities rebounded 2.3 percent, as temperatures moved back toward seasonal norms, while the output of mines moved down 1.2 percent. At 111.9 percent of its 2002 average, overall industrial output for the month was 2.6 percent above its January 2006 level. The rate of capacity utilization in January fell 0.6 percentage point, to 81.2 percent. Even so, it was 0.1 percentage point above its year-earlier level and 0.2 percentage point above its 1972-2006 average.

OK -- let's break these numbers down a bit.

1.) Auto production accounted for half of the decline. That means we have a 1-time factor disproportionately hitting this number. While the decrease still means something important for this number, it's doubtful we'll see auto production drop that much again in the near future. The drop occurred in autos and trucks. Even without the auto numbers, overall production decreased .2%.

2.) Energy products increased in production. While the 4th quarter still saw a big drop, this large increase may bode well for this sector in the future.

3.) Computers, semi-conductors and communication equipment all saw increases. Excluding high-tech, non0energy production decreased 1.1%. That indicates technology production is really important to the industrial base right now and negative news from that sector will be doubly important.

4.) Industrial capacity decreased in a big way. This should help the Fed continue t argue that inflationary pressures are lessening.