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Financial markets

Industrial Production and Factory Operating Rates Surge in August

Strategic Insights

— 1 min read

The August industrial production report showed a sharp increase, suggesting that the manufacturing sector is operating nearly at full throttle. This surge in production, combined with the Federal Reserve's efforts to keep a lid on economic growth, has raised concerns about inflation and led to a reaction in the bond market. The yield on long-term bonds rose to 7.77 percent, the highest level in over two years, and stock prices fell. Some economists, like Peter L. Bernstein, believe that this growth in exports and automobile sales could push the inflation rate higher, while others, like Jerry Jasinowski, predict that this is the last surge of industrial production.

Key Takeaways:

  • Industrial production rose seven-tenths of a percent in August, a sharp increase that has raised concerns about inflation.
  • The nation's factories, mines, and utilities operated at 84.7 percent of their capacity, the highest level since August 1989.
  • The capacity utilization figure has reached 85 percent, prompting some economists to predict that shortages will develop and manufacturers and retailers will find they can raise prices.
  • The bond market has concluded that economic growth and rising inflation are imminent, prompting a surge in interest rates.
  • Manufacturers, however, downplay the significance of capacity utilization, citing the flexibility and expandability of capacity, particularly in the auto industry.
  • The Big Three auto manufacturers - General Motors, Ford, and Chrysler - have stated that they have held back sticker price increases on 1995 models to roughly the inflation rate, despite demand for greater increases.

Statistics:

  • The yield on long-term bonds rose to 7.77 percent, the highest level in over two years.
  • The August industrial production report showed a 7.7% increase.
  • The nation's factories, mines, and utilities operated at 84.7% of their capacity.
  • The capacity utilization percentage has reached 85%.
  • The gross domestic product grew by a 4% in the 12 months that ended in June.
  • Fifty prominent forecasters estimate that the economy is currently growing at an annual rate of 2.2%.
  • The average annual interest rate has been 7.5% since February, with five interest rate increases.

Sources:

  • The New York Times, Page 37
  • The New York Times, Page 48

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