- The Washington Times - Friday, January 17, 2003

WASHINGTON, Jan. 17 (UPI) — The Federal Reserve on Friday reported that U.S. industrial production, a key measure of work done by factories, mines and utilities, fell a seasonally adjusted 0.2 percent in December after rising 0.1 percent in November.

Economists on Wall Street were expecting industrial production to rise 0.2 percent during the month.

The Fed also said the plant in use rate fell to 75.4 percent in December, the lowest since last March, from 75.6 percent in November. Economists had expected the ratio to rise to 75.7 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.

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, fell 0.2 percent after rising 0.1 percent in November.

Production of consumer durable goods, which includes automobiles, furniture and electronics, fell 2.2 percent after rising 3.2 percent a month earlier.

Production of autos and parts fell 4.7 percent after climbing 4.3 percent in November.

The Fed said business equipment production, which includes transportation and information processing equipment, declined 0.5 percent in December after slipping 0.2 percent during the previous month. Production of computers and other office equipment rose 1.2 percent after rising 1.3 percent in November.

Production of non-durable consumer goods, which include food, clothing and paper products, eased 0.1 percent during the final month of 2002 after falling 0.3 percent during the previous month.

Electric and gas utility production declined 1.2 percent in December after posting no change in November. Mine production rose 1.6 percent after rising 0.7 percent a month earlier.

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