US industrial output up 0.4% in August, above expectations; up 0.2% over past 12 months; NAB: downward revisions blunt better-than-expected outcome; long-term Treasury yields rise moderately; rate-cut expectations soften; 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 0.4% on a seasonally adjusted basis in August. The result was greater than the 0.1% expansion which had been generally expected but lower than July’s 0.7% increase after it was revised down from 1.0%. On an annual basis the contraction rate accelerated from July’s revised figure of zero to 0.2%.
“Downward revisions blunted the beat and the better-than-expected outcome was not driven by manufacturing which was as expected at 0.1%,” said NAB Head of Market Economics Tapas Strickland.
Long-term US Treasury bond yields increased moderately on the day. By the close of business, the 2-year Treasury yield had gained 3bps to 5.04% while 10-year and 30-year yields both finished 4bps higher at 4.33% and 4.42% respectively.
In terms of US Fed policy, expectations of a lower federal funds rate in the first half of 2024 softened. At the close of business, contracts implied the effective federal funds rate would average 5.33% in September, in line with the current spot rate, 5.405% in November and 5.425% in December. September 2024 contracts implied 4.945%, 39bps 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%. August’s reading increased from July’s 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.
