Industrial Production Falls in September

By October 18, 2010Economy

After six consecutive monthly increases, the Federal Reserve reported today that industrial production fell by 0.2 percent in September, the largest decrease since May 2009.

Making up 72 percent of overall industrial production, the overall decline was mainly caused by a 0.1 percent fall in manufacturing production in September.  And for the third quarter overall, manufacturing production only increased at an annual rate of 4 percent, less than half the 8.7 percent pace achieved during the prior four quarters. 

The fact that the September decline in manufacturing production came right after a sharp deceleration from 0.7 percent growth in July to 0.2 percent growth in August is a concerning sign that even though manufacturing continued to recover last quarter, it has lost steam over the last three months ending in September. The drop in manufacturing production last month was mainly due to a 0.2 percent drop in durable goods industries, which more than offset a modest 0.1 percent increase in the nondurable goods sector.

Within durable goods, the drop in output was very diffuse, with eight of the eleven major manufacturing industries posting declines.  The industry declines ranged from capital goods such as machinery, aerospace, computers and electrical equipment to supplies such as wood products, furniture, fabricated metals and primary metals.  For half of these industries, this was the second consecutive monthly decline.

With most of the fiscal stimulus and inventory rebuild now in the past, today’s report adds to the mounting evidence that the manufacturing recovery has decelerated significantly from the robust growth achieved earlier in the year.  And with increased business uncertainty building due to possible policy changes from Washington, lawmakers should take note of today’s report and pause before enacting any measures that would undercut the economic recovery, which clearly is weakening.

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