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Low Mining Activity Kept September Industrial Production Negative

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Industrial production fell 0.2% in September 

US industrial production (or IIP) fell 0.2% in September against the revised 0.1% fall in August 2015. Though industrial production continued to be negative, it was better than the consensus estimate of -0.3%.

Manufacturing output decreased 0.1% in September, with the production of nondurable goods remaining unchanged, as the output of durable goods moved down 0.2%. The Industrial Select Sector SPDR ETF (XLI) has gained 0.5% over the past month as of October 16, 2015.

 

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Lower capacity utilization reduces profit potential

Industrial production was negative from January onward, other than in July when it jumped by 0.9%. Capacity utilization trending lower, at 77.5% in September, clearly indicates that production is struggling to regain strength in the economy. With low capacity utilization, potential profits may take a hit.

With the falling demand for crude, a sizable cut in both the extraction and drilling of oil and gas was noticed. The index for mining fell to 2.0% in September and has fallen 5.7% from a year ago. The SPDR S&P Metals & Mining ETF (XME) and The Energy Select Sector SPDR ETF (XLE) have fallen 43.8% and 17.1%, respectively, from a year ago as of October 16, 2015. ExxonMobil (XOM) and Chevron (CVX) have fallen 10.1% and 18.1%, respectively, over the same period.

Utilities rose to 1.3% in September

Warmer temperatures lead to an increase in the index for utilities to 1.3% in September. The Utilities Select Sector SPDR ETF (XLU) gained 4.5% over the past month as of October 16, 2015. Duke Energy (DUK), NextEra Energy (NEE), Dominion Resources (D), and American Electric Power (AEP) have each jumped about 5.0% over the same period.

Industrial production continues to struggle due to the slowdown in China and other emerging economies. The stronger dollar is also impacting the demand for goods in the international market.

In the next article, let’s take a look at how employment is being affected due to falling demand.

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