Ida holds back US industrial production in August

Summary: US industrial output expands by 0.4% in August, more than expected; up 5.9% over past 12 months; Hurricane Ida subtracts estimated 0.3 percentage points; capacity utilisation rate rises to 76.4%, exceeds February 2020 figure, still below 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 but then began recovering in subsequent months.

According to the Federal Reserve, US industrial production expanded by 0.4% on a seasonally adjusted basis in August. The result was a little higher than the 0.3% increase which had been generally expected but half of July’s 0.8% expansion after it was revised down from 0.9%. On an annual basis, the expansion rate slowed from July’s figure of 6.6% to 5.9%.

The report stated production would have been an estimated 0.3% percentage points higher were it not “shutdowns related to Hurricane Ida.”

US Treasury bond yields hardly moved on the day. At the end of the day, the 2-year Treasury yield had returned to its starting point at 0.21%, the 10-year yield had inched up 1bp to 1.30% while the 30-year yield finished unchanged at 1.86%.

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 rose from July’s revised figure of 76.2% to 76.4%, exceeding February 2020’s 76.3% but still short of the long-term average of 79.6%.

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.


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