Tuesday, May 17, 2011

Market comments for May 17th.

The markets were disappointed again today with Industrial Production for April coming in at 0%, that's right "zero" percent! Expectations were for 0.5% and last month's numbers were revised downward from 0.8% to 0.7%. The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report.

In addition to Industrial Production, Capacity Utilization figures dropped for the month from an expectation of 77.5% down to 76.9% for April. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. According to Briefing.com, Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated. You can see we are going lower, not higher with a drop today in commodities in general.

This may be a boring topic, but the essence is factories are underutilized as are workers. With a lower number there is less of a need to hire workers. That is one of the reasons why the stock market is down this morning.

I'll try to spice up my next post. :)

Housing Starts were also lower than expectations and Building Permits were also down for April.

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