Friday, March 17, 2006

Industrial Production Healthy, Capacity Utilization Near Average Levels, Consumer Sentiment Irrationally Low

- Industrial Production for February rose .7% versus estimates of a .8% increase and a -.3% decline in January.
- Capacity Utilization for February rose to 81.2% versus estimates of 81.4% and 80.8% in January.
- The Preliminary Univ. of Mich. Consumer Confidence reading for March remained at 86.7 versus estimates of 88.0 and a reading of 86.7 in February.
BOTTOM LINE: Industrial production in the US rebounded last month due to record utility output, Bloomberg said. Capacity utilization is only around average levels, which is a big positive this deep into an expansion. Businesses now have enough goods on hand to meet 1.24 months’ demand at the current pace, an all-time record low. Industrial production should continue adding to US economic growth over the intermediate-term on inventory rebuilding as companies gain confidence in the durability of the current expansion.

US consumer confidence was unchanged in early March and Americans were restrained in their spending plans as gasoline prices and mortgage rates rose, Bloomberg reported. The current conditions component of the index, which measures Americans’ perceptions of their financial situation and whether it’s a good time to purchase large items such as automobiles, rose to 106.2 from 105.6 the prior month. I expect consumer sentiment to begin to rebound next month and reach cycle highs later this year as the labor market remains healthy, long-term rates remain relatively low, energy prices decline further, irrational pessimism lifts and stocks rise.

No comments: