Econoday Report: Industrial Production January 16, 2009

Industrial Production

Released on 1/16/2009 9:15:00 AM For December, 2008

	Prior	Consensus	Consensus Range	Actual
Production - M/M change	-0.6 %	-1.0 %	-2.0 % to -0.2 %	-2.0 %
Capacity Utilization Rate - Level	75.4 %	74.6 %	73.2 % to 75.2 %	73.6 %

Highlights
Industrial production in December plunged on lower auto assemblies plus broad-based weakness. Overall industrial production in December dropped 2.0 percent, following a 1.3 percent decline the month before. The December fall was far worse than expected - the market had projected a 1.0 percent decrease. The all-important manufacturing component fell 2.3 percent after a 2.2 percent decline in November. For the other major components in December, utilities slipped 0.1 percent while mining output decreased 1.6 percent.

A key part of manufacturing weakness was in motor vehicle assemblies which dropped to an annualized pace of 6.64 million units in December from 7.60 million in November - a 12.6 percent fall. But weakness was widespread. Durables output fell 2.6 percent in December while nondurables dropped 2.1 percent. You have to go deep into the detail to find any positive at all for December - which was in aerospace & miscellaneous transportation equipment (i.e., Boeing production).

Overall capacity utilization in December fell to 73.6 percent from 75.2 percent in November and came in below the consensus forecast for 74.6 percent.

On a year-on-year basis, industrial production in December slipped to down 7.8 percent from down 5.9 percent in November.

Today's industrial production report paints a bleak picture for manufacturing. Not much is supporting economic growth and more sectors are pulling growth down further as manufacturing and housing are both very negative. Today's numbers should be a negative for equities although a government bailout (another one) for Bank of America has equities up.

The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

Market Consensus Before Announcement
Industrial production in November resumed its strong downtrend after a technical rebound in October. Overall industrial production in November fell 0.6 percent, following a 1.5 percent rebound in October. The rebound in October was due to oil and chemical facilities coming back online after Hurricanes Gustav and Ike. In November, the all-important manufacturing component dropped 1.4 percent after a 0.6 percent partial rebound the month before. Within manufacturing, declines were widespread. Overall capacity utilization in November dropped to 75.4 percent from 76.0 percent in October and came in lower than the consensus forecast for 75.7 percent. Looking ahead, manufacturing output is likely to be ugly in January as manufacturing production hours plummeted a monthly 2.4 percent for the month, according to the employment situation report.

Industrial production Consensus Forecast for December: -1.0 percent
Range: -2.0 to -0.2 percent

Capacity utilization Consensus Forecast for December 08: 74.6 percent
Range: 73.2 to 75.2 percent

Definition
The index of industrial production is available nationally by market and industry groupings. The major groupings are comprised of final products (such as consumer goods, business equipment and construction supplies), intermediate products and materials. The industry groupings are manufacturing (further subdivided into durable and nondurable goods), mining and utilities. The capacity utilization rate -- reflecting the resource utilization of the nation's output facilities -- is available for the same market and industry groupings.

Industrial production was also revised to NAICS (North American Industry Classification System) in the early 2000s. Unlike other economic series that lost much historical data prior to 1992, the Federal Reserve Board was able to reconstruction historical data that go back more than 30 years. Why Investors Care

The industrial sector accounts for less than 20 percent of GDP. Yet, it creates much of the cyclical variability in the economy.

Data Source: Haver Analytics

The capacity utilization rate reflects the limits to operating the nation's factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84 to 85 percent.

Data Source: Haver Analytics

2009 Release Schedule

Released On: 1/16 2/18 3/16 4/15 5/15 6/16 7/15 8/14 9/16 10/16 11/17 12/15

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov