Summary: US industrial output down 0.1% in October, below expectations; up 3.3% over past 12 months; capacity utilisation rate down 0.2ppts to 79.9%, 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 contracted by 0.1% on a seasonally adjusted basis in October. The result contrasted with the 0.2% increase which had been generally expected as well as September’s 0.1% increase after it was revised down from 0.4%. On an annual basis the growth rate slowed from September’s revised figure of 5.0% to 3.3%.
Shorter-term US Treasury bond yields moved higher on the day while long-term yields fell back considerably. By the close of business, the 2-year Treasury yield had added 4bps to 4.38%, the 10-year yield had shed 8bps to 3.69% while the 30-year yield finished 12bps lower at 3.84%.
In terms of US Fed policy, expectations of higher federal funds rates over the next 12 months firmed slightly. At the close of business, contracts implied the effective federal funds rate would average 4.125% in December, 30bps higher than the current spot rate, and then climb to an average of 4.685% in February 2023. May 2023 futures contracts implied a 4.915% average effective federal funds rate while November 2023 contracts implied 4.605%.
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%. October’s reading declined from September’s revised figure of 80.1% to 79.9%, slightly below the long-term average of 80.0%.
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.
