Industrial Production and Capacity Utilization for September 1998

Federal Reserve Bulletin, Nov, 1998

Released for publication October 16

Industrial production, which had rebounded 1.6 percent in August after settlement of the strikes at key General Motors parts plants, declined 0.3 percent in September. The declines were widespread in durable manufacturing, with larger drops in steel and motor vehicles and parts. Excluding the output of motor vehicles and parts, the index of industrial production edged down 0.1 percent for a second month. At 128.7 percent of its 1992 average, industrial production in September was 2.4 percent higher than it was in September 1997. Capacity utilization fell 0.5 percentage point in September, to 81.1 percent, 1.0 percentage point below its 1967-97 average.

For the third quarter, industrial output was unchanged after having risen at an annual rate of 1.7 percent in the second quarter. The deceleration was evident in manufacturing: The increase in the production of durable goods dropped back 0.6 percentage point, to an annual rate of 1.9 percent, while the output of nondurable manufacturing fell more rapidly, declining at an annual rate of 3.5 percent in the third quarter. In both quarters, double-digit gains in output at utilities boosted overall growth; utility output was low in the first quarter, when unusually mild temperatures prevailed, but was high in the third quarter, when temperatures nationwide were quite hot. In contrast, mining, particularly metal mining and oil and gas extraction, declined in both the second and third quarters.

MARKET GROUPS

The output of consumer goods declined 0.4 percent in September. The production of automotive products, which had jumped nearly 33 percent in August, eased 2.6 percent. The output of other durable goods, particularly household appliances, fell for a second month. The production of nondurable consumer goods edged down further in September after having declined 0.6 percent in August. Sales of residential electricity, which had boosted the index for consumer nondurables earlier in the year, have continued to advance in recent months; output levels for food and tobacco, clothing, and chemical products have declined this quarter.

The production of business equipment fell 0.6 percent in September largely because of drops in the output of industrial and transit equipment. The production of trucks and construction equipment, which had been very strong in August, eased in September. Gains in the output of computers failed to offset decreases in the production of other information processing and related equipment, such as photographic equipment and telephone apparatus. The index for other types of business equipment recouped more than half of the August drop of 8 percent, which came from a slash in the output of farm machinery.

The output of construction supplies fell 0.7 percent, after having risen 1.6 percent in the preceding two months. Reflecting the active housing market, this index has moved to 6.0 percent above its level of last September. The production of materials, which had risen 1.4 percent in August, was unchanged in September. The indexes for durable and nondurable goods materials declined 0.3 percent, while the output of energy materials rebounded 0.9 percent.

INDUSTRY GROUPS

Manufacturing output fell 0.4 percent in September after the August jump of 1.8 percent, which came from a rebound in the production of motor vehicles and parts to above the pre-strike level. Excluding motor vehicles and parts, factory output dropped 0.1 percent in August and 0.3 percent in September. Other notable declines in durable manufacturing in September were in the iron and steel and lumber industries. The production of steel fell 4.4 percent and stood more than 9 percent below the high in the first quarter; the weakness in steel reflects an influx of imports in recent months. Among other major durable manufacturing industries, the output of computers and semiconductors rose more than 1 percentage point. The production of nondurables declined 0.2 percentage point after having fallen 0.6 percent in August. The output of chemicals and petroleum products fell, while the output of textile mill products rose.

The factory operating rate fell 0.7 percentage point, to 79.6 percent, and was 2.7 percentage points below the level of late last year and 1.5 percent below its 1967-97 average. The declines in utilization were quite widespread both among durable and nondurable manufacturing industries and among primary- and advanced-processing industries. The utilization rate of electric utilities reached a high level that reflects both higher levels of generation and slower growth of capacity at electric utilities that face an uncertain market.

REVISION OF INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION

In late November, the Federal Reserve will publish revisions to its measures of industrial production (IP), capacity, capacity utilization, and industrial use of electric power. The revisions will begin with 1992 and will incorporate updated source data for more recent years.