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Industrial Production Contracts But at Slowing Rate

Both the Federal Reserve and Institute for Supply Management say June figures show significant improvement over previous months.

By John McCloud | Updated on July 22, 2009

WASHINGTON, DC-June brought encouraging if not entirely positive news regarding US industrial production. Both the Federal Reserve and the Institute for Supply Management (ISM) report industrial production figures for were significantly better than those in preceding months.

According to the Federal Reserve, June’s 0.4% rate of production decline at factories, mines and utility companies was the lowest in eight months. Though still negative, the figure was considerably improved over the 1.2% decline recorded for May. It was also below the 0.6% economists had forecast. However, factory output alone, which accounts for 80% of industrial production, did fall 0.6%. In addition, the level of industrial capacity in use dropped to a record-low of 67%.

According to Tempe, AZ-based ISM, its monthly factory services index for June rose to a reading of 44.8, from 42.8 in May. The result marked the sixth straight month-to-month increase and the highest reading since August 2008. Though the figure means the manufacturing sector has now contracted 17th months straight, the fact the rate of contraction is slowing indicates the economy is gradually regaining equilibrium. Index readings of more than 50 indicate expansion, while readings below 50 indicate contraction.

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