Tuesday, November 17th, 2009
Industrial Production Slows In October, Drags Stocks
Caterpillar Inc. (CAT), Terex Corporation (TEX) and The Boeing Company (BA) were among the biggest losers after the Federal Reserve released its Industrial Production report that came in much lower-than-expected.
Industrial production rose a less-than-expected 0.1% in October as manufacturers began to scale back operations. Economists had expected 0.4% growth and the lackluster results have many convinced that the Federal Reserve will keep interest rates near record lows for an extended period that could reach well into 2010 or beyond, according to some economists.
The Industrial Production report is a fixed-weight measure of the physical output of the nation’s factories, mines, and utilities. The report also contains a measure of capacity utilization, which is a critical gauge of the slack available in the economy. Meanwhile, a key wildcard in the report that can’t be predicted accurately are the utilities that vary based on weather and other factors.
One of the reasons for the lower-than-expected production was a slowdown in motor vehicle and parts production, which fell 1.7% following an 8.1% increase in the prior month. The scale-back came as the “cash for clunkers” program reduced incentive to purchase cars in late August. However, positive automotive sales earlier this week may eventually reverse the trend.
Cuts in production were also logged for appliances, furniture, carpeting, clothing, computers, electronic products, paper products, petroleum, coal products, fabricated metals and other things. The move comes after Federal Reserve Chairman Ben Bernanke warned that a number of economic headwinds – including rising unemployment and tight credit – will restrain a recovery.
Key Points
- Industrial production dropped to 0.1% for October, which was below economists’ forecasts of 0.3%.
- The reason was largely due to the expiration of the cash for clunkers program that reduced automotive manufacturing substantially.
- An economic recovery could take some time to fully take hold amid rising unemployment, tightened credit, and now slowing manufacturing growth.
Written by Simon Monger
