Implications: Production in the US industrial sector declined in September, the first negative reading for any month since the recession ended in June 2009. However, this is not a sign of a double-dip recession. Unusually mild weather in September for much of the country pushed down utility production by 1.9%. And while manufacturing dipped 0.1% in September, it was up 0.1% when you include upward revisions to previous months. We anticipate a rebound in factory output next month. Although capacity utilization in the industrial sector is at 74.7% -- versus a long-term average of 80% -- capacity use is well above the low of 68.2% at the bottom of the recession in mid-2009. The rise in capacity utilization over the last 15 months is in part due to the economic revival, but also because of falling capacity in the industrial sector. As a result of a depreciating capital stock, capacity use could be back to the long-term average of 80% by next year. In turn, this gives companies the motive to buy more equipment. Meanwhile, corporate profits and cash on the balance sheet (earning essentially 0% interest) are near record highs, meaning companies have the wherewithal to buy more equipment as well.
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