Summary: US industrial output expands by 1.3% in October, greater than 0.8% expected; up 5.1% over past 12 months rebound “inevitable after Hurricane disruption”; auto production up 11%, manufacturers overcoming raw materials, labour shortages; capacity utilisation rate up 1.2ppt to 76.4%; back above February 2020 figure, still well short of 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 but then began recovering in subsequent months.
According to the Federal Reserve, US industrial production expanded by 1.6% on a seasonally adjusted basis in October. The result was greater than the 0.8% increase which had been generally expected and in contrast to September’s 1.3% contraction. On an annual basis, the expansion rate accelerated from September’s figure of 4.6% to 5.1%.
“It’s worth noting that a strong rebound was inevitable after Hurricane disruption and the level of manufacturing output is back above its pre-pandemic levels,” said NAB senior economist Tapas Strickland.
US Treasury bond yields moved moderately higher on the day. By the close of business, the 2-year Treasury yield had inched up 1bps to 0.53%, the 10-year yield had added 3bps to 1.65% while the 30-year yield finished 4bps higher at 2.04%.
Strickland noted an “11% bounce-back in auto production”, which may say something about the state of global semi-conductor production. “Even excluding this sector, the increase in production was a healthy 0.6%, with manufacturers overcoming shortages of raw materials and labour constraints.”
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 rose from 75.2% to 76.4%, back above February 2020’s reading of 76.3% but still well short 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.
