This morning's report that industrial production fell by 0.3 percent in August is bad news for the strength of the U.S. recovery. It's hard to see how GDP growth in the third quarter can be faster than in the second quarter if industrial production is essentially flat. And if GDP growth in the third quarter is as slow as the second quarter, the unemployment rate and the gap between actual and potential output are going to rise.
WSJ.com - Economy: WASHINGTON -- Industrial output fell last month for the first time since December, surprising economists who had expected output to continue to rise. Industrial production fell 0.3% in August after a revised 0.4% gain in July, the Federal Reserve said Tuesday. July's increase was previously estimated as a 0.2% increase. Capacity use fell 0.2 percentage point in August to a level of 76%. Economists had expected production to rise 0.1% and capacity use to hold steady, according to a survey by Thomson Global Markets.
"It is a setback, but hopefully only a brief one," said Carl Tannenbaum, chief economist for LaSalle Bank...
Industrial Production Falls
For First Time in 9 Months
A WALL STREET JOURNAL
ONLINE NEWS ROUNDUP
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WASHINGTON -- Industrial output fell last month for the first time since December, surprising economists who had expected output to continue to rise.
Industrial production fell 0.3% in August after a revised 0.4% gain in July, the Federal Reserve said Tuesday. July's increase was previously estimated as a 0.2% increase.
Capacity use fell 0.2 percentage point in August to a level of 76%.
Economists had expected production to rise 0.1% and capacity use to hold steady, according to a survey by Thomson Global Markets.
"It is a setback, but hopefully only a brief one," said Carl Tannenbaum, chief economist for LaSalle Bank.
The nation's manufacturing sector was hardest hit by the recession. To cope, the industry throttled back production and cut hundreds of thousands of jobs. Manufacturing started off the year with a bang, but the comeback trail has been spotty and slow.
In August, production at factories slipped 0.1%, also the first drop since December. The decline followed a 0.3% advance in July. Production of consumer goods was especially weak, dropping by 0.5%. Production of cars and parts, which posted sizable gains in June and July, decreased 0.5%. Production of home electronics, appliances, furniture and carpeting also declined.
Much of the overall weakness came from a sharp 2.5% drop in output at gas and electric utilities, despite relatively high temperatures in August. That more than reversed a 2.4% advance in July.
However, production at mines rose by a strong 0.8% in August, taking back a 0.5% drop in July.
The economy grew at a below-par annual rate of 1.1% in the second quarter, a sharp slowdown from the brisk 5% growth rate turned in during the first three months of the year. Many economists believe economic growth has picked up in the current quarter.
The Fed's report is consistent with other data showing that the manufacturing sector hit some turbulence in August.
Earlier this month, a report from the Institute for Supply Management showed that manufacturing activity barely grew in August. The group's index of business activity stood at 50.5 in August. An index reading above 50 signifies growth in manufacturing, while a reading below that signifies a contraction.
Posted by DeLong at September 17, 2002 02:34 PM | Trackback