Industrial production resumes decline
Manufacturing decreases after a sharp post-hurricane increase the previous month, according to a Federal Reserve report.
NEW YORK (CNNMoney.com) -- Industrial production declined in November after a post-hurricane rebound the previous month, according to a report released Monday by the Federal Reserve.
Industrial production decreased a seasonally adjusted 0.6% from the previous month, less than the 0.8% decline expected by a Briefing.com survey of economists. The declines were broad-based across industries.
At 106.1% of its 2002 average, production was 5.5% below its level of a year earlier.
"There aren't any surprises here at all," said John Silvia, chief economist at Wachovia (WB, Fortune 500). "The driving factor, of course, was weakness in manufacturing. The machinery and auto components have also been consistently weak."
As a measure of the physical output of the nation's factories, mines, and utilities, industrial production is one of the four indicators that the National Bureau of Economic Research considers to determine if the nation's economy has fallen into a recession. The other three factors are employment, personal income and retail and wholesale sales of manufactured goods.
"These numbers are re-emphasizing the depth of the recession," Silvia said. "These declines signal core weakness in corporate profits. Companies don't have the money to invest in equipment or people. They're not going to be buying equipment or hiring people."
Capacity utilization for all industries, a measure that tracks the percentage of factories in use, came in at a seasonally adjusted 75.4%. The Briefing.com consensus predicted 75.6%. That's 5.6 percentage points below its average level from 1972 to 2007.
Industrial production has been volatile over the past year-and-a-half. During the 2001 recession, production fell for 12 straight months.
Industrial production increased a revised-up 1.5% for October, but economists warned the bounce did not represent underlying strength. It was a rebound in chemical, mining and other production that was curtailed in September after hurricanes Gustav and Ike.
"The weather causes a lot of variability," Silvia said. "When you look at prior months' data, other than October's bounce back, the overall trend has been weak for the past year."
Manufacturing production dropped 1.4% in November, while the output of mines advanced 2.5% after further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico.
The production of consumer goods decreased 0.7% in November, the output of consumer durables fell 3%, and the output of consumer nondurables edged down 0.1%.
Those declines were seen across industries: Auto products sank 2.6%; appliances, furniture, and carpeting fell 4.0%; home electronics decreased 1.7%; and miscellaneous goods declined 3.4%.
"The outlook is pretty bleak," Silvia said. "Production cutbacks have been occurring, and they'll continue to happen. It's time for these industries to rationalize their production relative to their sales."