After edging down 0.2 percent in September, the Federal Reserve reported today that industrial production was flat in October. A 0.6-percent rise in manufacturing production was offset by declines in mining and utilities production. Following very sluggish growth during the past several months, the October increase in manufacturing production was primarily due to two factors.
First, the recent upturn in housing activity fueled increases in the production of wood products, nonmetallic minerals and electrical equipment and appliances, all of which posted healthy production gains in excess of 2 percent last month.
Second, continued growth in business investment and exports drove noticeable upturns in the production of machinery, computers and electronic products in October. This is a positive sign that businesses are now replacing equipment that has become outdated — actions that were likely delayed during the recession. At the same time, with over half of the growth in machinery output driven by sales abroad over the past year, today’s report is good news on the export front. Solid growth in exports over the past year has been one component of the recovery that has outperformed most prior recoveries and one of the main reasons manufacturing has been outpacing the overall recovery.
One area of weakness continues to be consumer-related. The production of consumer goods was flat in October after declining each of the prior two months. Retail inventory-to-sales ratios have increased in recent months to their highest levels since last October. As retailers reduce excess inventory stocks, this will likely curtail both production and imports of consumer goods over the next several months.