October Industrial Production Report Points to Continued Solid (Not Spectacular) U.S. Recovery

The Federal Reserve Board issued the index of industrial production and the related measures of capacity and capacity utilization yesterday. Dr. David Krause, AIM program director commented, "The headline read: 'Industrial Production and Capacity Utilization were Unchanged in October.' The sub-headline read: Unseasonably warm weather led to a sharp 3.4 percent drop in utility output during October, which held overall industrial production unchanged for the month; however, output in the factory sector rose a robust 0.5 percent."

Dr. Krause added, "Don't panic - the October manufacturing output was a solid 0.5% gain and September's -0.2% figure was changed to +0.1%.  This is considerable improvement - and with lower utility bills, consumer spending might be stronger than expected in the fourth quarter."

"Business equipment output surged 1.1% in October, suggesting that the capital spending boom in equipment is still intact," Krause added. "The calculus shows that the inflation-adjusted dollar value of output of business equipment in October stood 5.3% (annualized) which is well above the Q3 average. I consider that a very good start for capital spending in Q4’s GDP."

"Manufacturing made good progress towards its recovery in October.  In total, it has now recovered about half its recession losses; however, the big push from inventory rebuilding is mostly behind us, so further gains in 2011 will be challenging. Nevertheless, with the election results and QE2 announced - I believe there has been a reduction in business uncertainty and that the climate is improving. I look for light vehicle sales in the U.S. to be stronger in 2011 than consensus which will help lead related segments to higher output. All-in-all, the October industrial production report was solid and provides hope that next year will be stronger than 2010," Krause concluded. "I remain more bullish than bearish about the U.S. economy."