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One More Reason the Feds May Push Off Rate Changes Today: Manufacturing
Wednesday, September 16, 2015 6:35 AM

According to an article in the Wall Street Journal (09/14/15), gross domestic product is growing steadily; robust job gains have whittled the unemployment rate; and housing seems to have gotten past the doldrums. However, one area of the economy with plenty of room for improvement is manufacturing.

Economists estimate industrial production—the combined output of U.S. manufacturers, utilities and mines—fell a seasonally adjusted 0.2 percent last month from July. Much of that decline owes to seasonal quirks.

Many auto plants that typically close for retooling in July stayed open instead. So the August figures, after adjusted for statistical factors, will register a decline rather than a rise.

The more telling sign in manufacturing is their low level of capacity utilization. As of July, manufacturers were running at 77 percent of capacity. In the 1990s, the average rate was 81.2 percent. Before the recession it was 80 percent.

Manufacturers are far more directly affected by low overseas factories costs, the strength of the U.S. dollar, and weak overseas economies.

This creates a situation in which it's difficult for manufacturers to raise prices. The impact of that inability is inflation remaining exceptionally low, a trigger point for the Fed decision. The Fed has determined that changing rates is heavily determined when inflation reaches and is sustained at 2 percent.

Source: The Wall Street Journal, 14 September 2015