Industrial production moved-up 0.9% in October, month on month, (m/m) besting analyst’s consensus forecast. This was the strongest monthly gain since April of this year. Production was broad based, manufacturing production also recorded its best gain since April, surging 1.3% m/m as capacity utilization advanced 0.6%.

Industrial production is a pure measure of output, untainted by the effects of price swings, in the industrial part of the U.S. economy. Every month, the Federal Reserve calculates an index of industrial production after collecting data on 312 industry components representing manufacturing, mining, and the electric and gas industries. The individual series are constructed from two types of source data: (1) output measured in physical units and (2) data on inputs into the production process, in which output is inferred. Each component is given a weight based on how important it is to the economy. These weights are adjusted once a year. The current reference period for the index is 2002.

Durable goods manufacturing recorded a 0.4% gain in October. Manufacturing employment and hours worked suggested that U.S. factories have more orders to process. Manufacturing production was up 1.3% m/m and up 2.5% on a year-ago basis.

Motor vehicles and parts rose, 1.0% on the heels of a 3.7% gain in August and a 1.7% rise in September. After three monthly advances, this segment is now down 1.6% year on year, (y/y). Mining fell 1.3% but production was higher by a healthy 6.4% on a y/y basis. Meanwhile utilities were up 2.0% m/m and by 0.9% y/y.

Non-auto manufacturing production increased 1.3% and was higher by 2.9% y/y. Machinery production, a key factor to increased productivity was flat in October. Consumer goods production advanced 0.5% m/m and was up by 0.2% y/y.

us-ip-fig1Figure 1 illustrates the U.S. industrial production from 2010 to present as a three month moving average, (3MMA) on the left hand Y axis. Year on year change in percent is shown on the right hand Y axis. The 3MMA in October was 106.15, up 0.9% m/m and up 1.8% year on year. Capacity utilization for total industry was up 0.6% m/m to 77.0%. Manufacturing capacity utilization scored a 76.4%, surpassing April’s peak of 76.0%.

October’s industrial production report was very encouraging and the robust fundamentals are expected to continue to drive further gains in the months ahead. A weaker dollar is helping manufactures market their products overseas and the global economy is in the best shape in years. A strong labor market should push wages higher which will support still stronger consumer spending and therefore higher demand for manufactured products.

We monitor US Industrial Production at Gerdau because it gives a real time evaluation of the current health and insight on the short-range future of the manufacturing sector.