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Economic Watch: Manufacturing Pushes Industrial Production Higher

October 17, 2016

By Evan Lockridge

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The total output from the nation’s factories, mines and utilities rebounded last month, posting its best quarterly performance in a year, due in part to increased manufacturing, according to new Federal Reserve figures.

Its measure of industrial production edged up 0.1% in September following a downwardly revised 0.5% drop in August.

Manufacturing output increased 0.2% in September and moved up at an annual rate of 0.9% in the third quarter. It's at the same level as a year ago. The production of durable goods, those designed to last three years or more, remained unchanged. The production of nondurables increased 0.5% while the production of other manufacturing, such as publishing and logging, fell 0.8%.

For the third quarter as a whole, industrial production rose at an annual rate of 1.8% for its first quarterly increase since the third quarter of 2015.

At 104.2% of its 2012 average, total industrial production in September was 1% lower than its year-earlier level.

Capacity utilization for the industrial sector edged up 0.1 of a percentage point in September to 75.4%, a rate that is 4.6 percentage points below its 1972–2015 average.

The improved overall performance adds to hope the nation’s industrial sector has gotten past the effects of a strong U.S. dollar and lower oil prices, which pushed manufacturing numbers lower due to bloated inventories as goods made here became too expensive overseas and as the collapse in oil prices resulted in many companies in the energy sector pulling in the reins.

This latest report follows ones from earlier in the month showing manufacturing expanded in September, though they differed in how much things had actually improved.

These and other factors, such as increasing employment, have led to increasing optimism that when third quarter gross domestic product numbers are reported on Oct. 28, GDP will show annual growth of between 2% to 3%. If so, this would be far better than the 1.4% second quarter estimate from the Commerce Department in late September and a reading of 0.8% in the first quarter of the year.

However, with the better economy also comes the likelihood the Federal Reserve will push short-term interest rates higher. So far, policy makers are showing deep divisions in which way to proceed, leaving many wondering how they will decide at their next meeting.

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