Industrial Production Does a Post Superstorm Sandy Bounce, Increases 1.1% for November 2012

Hurricane Sandy has really wreaked havoc with industrial production's monthly percentage changes. Sandy wiped out almost a full percentage point of October's manufacturing production even though the storm hit New Jersey on October 29th. Manufacturing resumed in November, causing a 1.1% increase in manufacturing production. Twenty percent of industrial production activity is in counties affected by the storm and 3-4% of industrial production related employment is in the same areas.

Overall, The Federal Reserve's Industrial Production & Capacity Utilization report, G.17, shows a monthly increase of 1.1% in industrial production for November 2012. October showed a revised -0.7% change. The industrial production statistical release is also known as output for factories and mines. Manufacturing output jumped by 1.1%, mining increased 0.8% and utilities gained 1.0% from October.



Total industrial production has increased 2.5% from November 2011 and is still down -2.5% from 2007 levels, going on an incredible five years. Here are the major industry groups industrial production percentage changes from a year ago, which might be artificially high since many factories were playing catch up after after the storm.

  • Manufacturing: +2.7%
  • Mining: +3.0%
  • Utilities: +0.7%

There are two reporting methodologies in the industrial production statistical release, market groups and industry groups. Market groups is output bundled together by market categories, such as business equipment or consumer goods. Industrial output is by NAICS codes and is for all manufacturing, or all types of durable goods manufacturing*.

Below is the Fed's description of Market groups from the report and their monthly percent changes.

The production of consumer goods rose 1.2 percent in November, reversing a decline of the same magnitude in October. The output of durable consumer goods increased 2.8 percent in November. Among durable consumer goods categories, the index for automotive products rose 3.4 percent, its first increase in five months; the indexes for home electronics; for appliances, furniture, and carpeting; and for miscellaneous goods all posted smaller increases. The production of nondurable consumer goods advanced 0.7 percent. The index for consumer energy products rose 0.9 percent after having fallen 0.7 percent in October, and the index for non-energy nondurables increased 0.7 percent in November following a decline of 1.9 percent in October. Among non-energy nondurables, the output of foods and tobacco, of clothing, and of paper products all registered sizable gains in November, while the output of chemical products edged down.

The output of business equipment moved up 1.2 percent in November and was 7.4 percent above its year-earlier level. The production of transit equipment increased 2.5 percent, and the production of industrial and other equipment rose 1.3 percent; output in both categories stepped down noticeably in October. The index for information processing equipment fell 0.4 percent in November, but it remained 4.0 percent above its year-earlier level.

The output of defense and space equipment was unchanged in November after decreasing 1.9 percent in October; however, the index stood 0.8 percent above its year-earlier level.

Among nonindustrial supplies, the output of construction supplies increased 1.4 percent in November, its largest monthly gain since February. The production of business supplies rose 0.7 percent in November following three consecutive months of declines.

The output of materials to be processed further in the industrial sector advanced 1.0 percent in November after having edged down 0.1 percent in October. The indexes for energy materials and for durable materials posted sizable gains in November, while the index for nondurable materials rose moderately. The output of durable materials increased 1.6 percent after three months of decreases. The index for consumer parts rose substantially, boosted in particular by motor vehicle-related production, and stood 17.8 percent above its year-earlier level; the output of equipment parts increased 0.3 percent in November after having moved down 0.5 percent in October. In November, the index for nondurable materials gained 0.4 percent; the indexes for textiles and for paper moved up, while the production of chemicals was unchanged. The output of energy materials rose 0.9 percent.

Below is a graph of just the manufacturing portion of industrial production.



Manufacturing not only rebounded from the storm, but output for motor vehicles increased by 6.0%. By industrial groups, durable goods output overall increased 1.6% with wood products gaining 3.4%. Primary metals gained 3.7% while computers declined by -0.4%. Electrical equip., appliances, and components gained 2.3%, a turn around from last month's -1.7% decline. Machinery gained 1.0% after October's -2.0% decline. Below is a graph of durable goods industrial production.



Nondurable goods manufacturing also gained, 0.5%. Food, beverage, and tobacco products increased by 0.7%, printing related production showed a 1.7% increase, Apparel & leather reversed October's declines with a 2.6% gain. Plastics also increased by 2.1%. Petroleum & Coal production declined by -0.2%. Below is nondurable goods by industry.



Below is graph of overall industrial production's percent change from a year ago.



Capacity utilization, or of raw capacity, how much is being used, for total industry is 78.4%, now 1.9 percentage points below the average from 1972 to 2011, 80.3%. Capacity utilization has increased 0.7 percentage points from a year ago. Manufacturing capacity utilization, 76.6%, is now 0.9 percentage points above the 75.7% level a year ago. Utility capacity utilization has decreased -1.3 percentage points from a year ago to 75.3%. Mining has increased 0.7 percentage points, to 91.1% from a year ago.

Capacity utilization is how much can we make vs. how much are we currently using, of what capacity is available now. Capacity utilization is industrial production divided by raw capacity.



Capacity utilization for durable goods has improved and is now 76.7%, which is only 0.4 percentage points below the long run average. Nondurable goods, on the other hand, is still 3.0 percentage points below it's long run average and stands at 77.9%.

Capacity growth is raw capacity and not to be confused what what is being utilized. Instead, this is the actual growth or potential to produce. Capacity is the overall level of plants, production facilities, and ability to make stuff, that we currently have in the United States. Think about a new factory being built, or a factory shut down and it's machinery sold at auction and shipped to China. This is capacity. Capacity growth overall has increased only 1.5 percentage points from October 2011. Below is the capacity growth increase from a year ago of the subcategories which make up industrial production.

  • Manufacturing: +1.5%
  • Mining: +2.2%
  • Utilities: +2.4%

According to the report for 2011, manufacturing uses 77.0% of capacity, with durables and nondurables each about 51.6% of that. Utilities use 10.3% and mining 12.8% in 2011 (rounded) to give a ratio of manufacturing vs. mining and utilities in terms of capacity. Selected high tech industries holds a measly 3.45% of the industrial portion and with computers only 0.44% and communications equipment only 0.66%.

Below is the Manufacturing capacity utilization graph, normalized to 2007 raw capacity levels, going back to the 1990's. Too often the focus is on the monthly percent change, so it's important to compare capacity utilization to pre-recession levels and also when the economy was more humming.



Here is our overview from last month, only graphs revised.

The Federal Reserve releases detailed tables for more data, metrics not mentioned in this overview.

If you are baffled by what crude, finished mean from the G.17 report, read these stages of production definitions. Stages of production have implications for exports and imports. Finishing industrial production implies goods for final sale and thus what kind of output one will see for the month. From the report:

Capacity utilization rates in November for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.5 percentage point to 88.5 percent, a rate 2.2 percentage points above its long-run average; at the primary and semifinished stages, utilization rose 0.9 percentage point to 75.8 percent, a rate 5.3 percentage points below its long-run average; and at the finished stage, utilization moved up 0.5 percentage point to 76.8 percent, a rate 0.4 percentage point lower than its long-run average.

*From the Federal Reserve definition details:

Market groups consist of products and materials. Total products are the aggregate of final products, such as consumer goods and equipment, and nonindustrial supplies (which are inputs to nonindustrial sectors). Materials are inputs in the manufacture of products. Major industry groups include three-digit NAICS industries and aggregates of these industries-for example, durable and nondurable manufacturing, mining, and utilities.

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