- The Washington Times - Friday, February 14, 2003

WASHINGTON, Feb. 14 (UPI) — The Federal Reserve said Friday U.S. industrial production, a key measure of work done by factories, mines and utilities, posted its largest rise in six months during January.

The government said industrial production jumped a seasonally adjusted 0.7 percent during the first month of 2003 — its largest rise since a same 0.7 percent increase posted back in July of last year.

The January gain was paced by a 4.9 percent rise in the assembly of autos and their parts.

Most economists on Wall Street were expecting industrial production to rise 0.3 percent during the month after slipping 0.2 percent in December.

The Fed also said the plant in use rate rose to 75.7 from 75.4 percent in December, which was the lowest since last March.

Economists had expected the ratio to rise to 75.6 percent during the month.

The index of industrial production is a chain-weight measure of the physical output of the nation's factories, mines and utilities. The capacity utilization rate reflects the usage of available resources.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures.

By tracking economic data like industrial production, investors will know what the economic backdrop is for these markets and their portfolios.

Industrial production shows how much factories, mines and utilities are producing. Since the manufacturing sector accounts for one-quarter of the economy, this report has a big influence on market behavior. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high, or above 85 percent, it can lead to inflationary bottlenecks in production.

The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures. As such, the bond market can be highly sensitive to this report.

The latest report showed work at factories, which accounts for almost 90 percent of U.S. industrial production, rose 0.5 percent after slipping 0.4 percent during the previous month.

Production of consumer durable goods, which includes automobiles, furniture and electronics, rose 2.6 percent after falling 2.5 percent a month earlier.

Production of autos and parts jumped 4.9 percent after falling 5.3 percent in December.

The Fed said business equipment production, which includes transportation and information processing equipment, rose 1 percent after declining 1.3 percent in December. Production of computers and other office equipment rose 1.1 percent after rising 1.5 percent a month earlier.

Production of non-durable consumer goods, which include food, clothing and paper products, rose 0.5 percent after easing 0.1 percent a month earlier.

The Fed said electric and gas utility production surged 4 percent during the month after falling 1.4 percent in December. Mine production fell 1.2 percent after rising 1 percent a month earlier.

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