Industrial output up in US; annual contraction rate slows

Summary: US output resumes expanding; rise just above expected figure; capacity utilisation rate increases following September decline.

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. Production began recovering in May and subsequent months after collapsing through March and April.

US industrial production expanded by 1.1% on a seasonally adjusted basis in October, more than making up for September’s decline. The result was a little over the 1.0% expansion which had been generally expected and in contrast to September’s 0.4% fall. On an annual basis, the contraction rate slowed from September’s revised figure of -6.7% to -5.3%.

The report was released on the same day as October retail sales figures and longer-term US Treasury bond yields fell moderately. By the end of the day, the 10-year Treasury yield had lost 4bps to 0.86% while the 30-year yield finished 6bps lower at 1.61%. The 2-year yield remained unchanged at 0.18%.

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’s multi-decade low of 64.2%. October’s reading increased to 72.8% from September’s revised figure of 72.0%.