US industrial output up 0.3% in September, above expectations; up 0.1% over past 12 months; US Treasury yields jump; rate-cut expectations soften considerably; capacity utilisation rate up 0.2ppts to 79.7%, slightly below long-term average.
The Federal Reserve’s industrial production (IP) index measures real output from manufacturing, mining, electricity and gas company facilities located in the United States. These sectors are thought to be sensitive to consumer demand and so some leading indicators of GDP use industrial production figures as a component. US production collapsed through March and April of 2020 before recovering the ground lost over the fifteen months to July 2021.
According to the Federal Reserve, US industrial production increased by 0.3% on a seasonally adjusted basis in September. The result contrasted with the 0.1% contraction which had been generally expected and it was greater than August’s unchanged reading after it was revised down from 0.4%. On an annual basis the expansion rate remained steady at August’s revised figure of 0.1%.
The figures were released at the same time as the latest US retail sales report and US Treasury yields increased significantly on the day. By the close of business, the 2-year Treasury yield had gained 11bps to 5.21%, the 10-year yield had jumped 14bps to 4.84% while the 30-year yield finished 8bps higher at 4.93%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened considerably. At the close of business, contracts implied the effective federal funds rate would average 5.355% in November, 3bps more than the current spot rate, 5.41% in December and 5.445% in January. September 2024 contracts implied 5.085%, 24bps less than the current rate.
The same report includes US capacity utilisation figures which are generally accepted as an indicator of future investment expenditure and/or inflationary pressures. Capacity usage had hit a high for the last business cycle in early 2019 before it began a downtrend which ended with April 2020’s multi-decade low of 64.2%. September’s reading increased from August’s downwardly-revised figure of 79.5% to 79.7%, slightly below the long-term average of 80.1%.
While the US utilisation rate’s correlation with the US jobless rate is solid, it is not as high as the comparable correlation in Australia.
