US Industrial Production July 2010

In July 2010, US industrial production increased by an encouraging 1.0%m/m (seasonally adjusted), which was well above market expectations for an increase of 0.5%m/m. Industrial production has now risen by 7.7% y/y in 11 of the last 12 months. This is certainly not indicative of a double-dip recession.

Capacity utilisation for industry rose by a healthy 0.7% in July 2010 to 74.8%, which is the highest level of utilisation since October 2008. Overall, capacity utilisation remains a significant 6.1% below its average from 1972 to 2009. The current level of capacity utilisation is clearly positive for inflation, and also suggests a subdued outlook for private sector fixed investment spending in the short-term. However, the upward trend in utilisation levels is ultimately encouraging from a growth and employment perspective.

Overall, industrial production, especially manufacturing output is systematically recovering, albeit off a low base. The recovery was initially driven by an adjustment to inventory levels, but will now hopefully be increasingly held up by a steady rise in domestic final demand (consumer spending and fixed investment activity) and exports. While the US economic data continues to ebb and flow, our long established base case growth trajectory remains on track.

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