Summary: US industrial output down 0.2% in August, below market expectations; up 3.7% over past 12 months; capacity utilisation rate down 0.2ppts to 80.0%, just 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 contracted by 0.2% on a seasonally adjusted basis in August. The result contrasted with the 0.2% increase which had been generally expected as well as July’s 0.5% increase after it was revised down from 0.6%. On an annual basis the growth rate slowed from July’s revised figure of 3.8% to 3.7%.
Short-term US Treasury bond yields moved higher on the day while longer-term yields remained steady or fell. By the close of business, the 2-year Treasury yield had gained 5bps to 3.82%, the 10-year yield had returned to its starting point at 3.44% while the 30-year yield finished 2bps lower at 3.50%.
In terms of US Fed policy, expectations of a steeper path for the federal funds rate over the next 12 months hardened. At the close of business, October contracts implied an effective federal funds rate of 3.14%, 81bps higher than the current spot rate. November contracts implied 3.775% while October 2023 futures contracts implied an effective federal funds rate of 4.20%, nearly 190bps above the spot 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%. August’s reading declined from July’s revised figure of 80.2% to 80.0%, just below of 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.
