Industrial Production Drops a -0.4% Bomb in October 2012 Thanks to Storm Sandy

Hurricane Sandy wiped out almost a full percentage point of industrial production even though the storm hit New Jersey on October 29th. 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. It matters where a Hurricane hits in terms of the economy.

The Federal Reserve's Industrial Production & Capacity Utilization report, G.17, shows a monthly decrease of -0.4% in industrial production for October 2012. This report is also known as output for factories and mines. Manufacturing output decreased -0.9%, mining increased 1.5% and utilities decreased -0.1% from September. Almost all of manufacturing production's decline is attributed to the storm, without Sandy manufacturing production would have been unchanged.



Total industrial production has increased 1.7% from October 2011 and is still down -3.4% from 2007 levels, that's right, five years. Here are the major industry groups industrial production percentage changes from a year ago. Superstorm Sandy just took a major bite out of the economy.

  • Manufacturing: +1.6%
  • Mining: +3.4%
  • Utilities: +0.5%

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 declined 0.9 percent in October. The output of durable goods advanced 0.2 percent, but the output of nondurables fell 1.2 percent. Among durable consumer goods categories, the index for automotive products rose after having declined in each of the previous three months; the production of home electronics moved up; the output of appliances, furniture, and carpeting was unchanged; and the index for miscellaneous goods decreased. Among non-energy nondurables, there were losses in the indexes for foods and tobacco, for clothing, and for paper products. Despite storm-related outages, the index for chemical products edged up. The output of consumer energy products stepped down 0.7 percent, partly reflecting a decline in residential utilities.

The output of business equipment moved down 1.2 percent in October, and all three of its major components registered similarly sized losses. The production of transit equipment decreased 1.2 percent, nearly offsetting its gain in September. The indexes for information processing equipment and for industrial and other equipment each fell slightly more than 1 percent in October, but both indexes were about 5 percent above their year-earlier levels.

The output of defense and space equipment declined 0.8 percent in October after a solid advance in September.

Among nonindustrial supplies, the output of construction supplies decreased 0.5 percent in October after having moved up in September, and the production of business supplies declined 0.7 percent in October and was 0.4 percent above its year-earlier level.

The output of materials to be processed further in the industrial sector rose 0.1 percent in October. A large gain in the index for energy materials more than offset declines in the non-energy categories. The output of durable materials decreased 0.5 percent, its third straight monthly decline. The index for consumer parts was unchanged in October and stood 15.1 percent above its year-earlier level. The output of equipment parts decreased 0.3 percent in October. The index for nondurable materials dropped 1.1 percent, reversing the gain of the previous month; each of its major components moved down. The output of energy materials rose 1.6 percent.

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



By industrial groups, durable goods output overall decreased -0.6% with machinery declining by -1.9%, Electrical equip., appliances, and components dropped by -1.4%, furniture declined by -0.4% and auto & parts slid by -0.1%. Only wood products showed an increase of the major industrial groups, a measly 0.1%. Below is a graph of durable goods industrial production.



Nondurable goods manufacturing also suffered with a -1.0% monthly drop and a -0.5% decline from a year ago. Food, beverage, and tobacco products declined by -1.8%, printing related production dropped by -1.5%, Apparel & leather declined by -2.1%. Petroleum & Coal production declined by -0.9%. Below is nondurable goods by industry.



There are even more hidden effects of Sandy than the above nondurable goods industry groups.

Production in the non-NAICS manufacturing industries (logging and publishing) fell 3.4 percent in October. The output of publishers was held down by the effects of Hurricane Sandy.

Below is graph of industrial production showing the percent change from a year ago.



Capacity utilization, or of raw capacity, how much is being used, for total industry is 77.8%, now 2.2 percentage points below the average from 1972 to 2011, 80.3%. Capacity utilization has increased 1.2 percentage points from a year ago. Manufacturing capacity utilization is now only 0.1 percentage points above the 75.8% level a year ago. Utility capacity utilization has decreased -1.3 percentage points from a year ago to 76.6%. Mining has increased 1.1 percentage points, to a 89.3% 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.



Both durable and nondurable goods capacity utilization suffered due to Sandy. Nondurable goods capacity utilization is down to 77.5%, or 3.4% below it's long term average. Durable goods capacity utilization is now 75.8% or 1.3% below the long term average for durable goods manufacturing capacity utilization. Since these are utilization rates, we believe these effects should be temporary. Power disruptions clearly idled many manufacturing plants due to Sandy versus less use of capacity due to slack demand. Still, the ravages of one storm are becoming quite the activity bloodbath.

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: +1.4%
  • Mining: +2.1%
  • Utilities: +2.3%

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 October for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.5 percentage point to 87.8 percent, a rate 1.5 percentage points above its long-run average; at the primary and semifinished stages, ut ilization dropped 0.4 percentage point to 75.0 percent, a rate 6.1 percentage points below its long-run average; and at the finished stage, utilization fell 1.0 percentage point to 76.4 percent, a rate 0.8 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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