Industrial Production Falls By Much More Than Expected In September

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Industrial production fell by much more than expected in the month of September, according to a report released by the Federal Reserve on Thursday, with the report also showing a bigger than expected drop in capacity utilization.

The report showed that industrial production fell by 2.8 percent in September following a revised 1.0 percent decrease in August. Economists had expected production to fall by 0.8 percent compared to the 1.1 percent decrease originally reported for the previous month.

The decrease marked the biggest monthly drop in production since 1974, although the Federal Reserve noted that the bigger than expected decrease came as hurricanes Gustav and Ike and a strike at a major producer of civilian aircraft severely curtailed output.

The Fed said that the disruptions from the hurricanes accounted for about 2.25 percentage points of the decrease, while the strike in the commercial aircraft industry contributed an estimated 0.5 percentage points to the overall decrease

Mining output showed a substantial decrease, falling by 7.8 percent in September after coming in unchanged in August. The decrease came as crude oil and natural gas operations in the Gulf of Mexico were suspended because of the hurricanes.

While manufacturing production fell by 2.6 percent in September after falling 0.9 percent in the previous month, utilities output increased by 2.2 percent after falling 3.1 percent.

The increase in output by utilities came as temperatures returned to more normal levels in September after a relatively cool August.

The Federal Reserve added that the capacity utilization rate fell to 76.4 percent in September from an unrevised 78.7 percent in the previous month. The capacity utilization rate came in well below economist estimates of 78.0 percent.

The bigger than expected decrease reflected a reduction in the capacity utilization rates in the manufacturing and mining sectors, which fell to 74.5 percent and 85.0 percent, respectively. At the same time, capacity utilization in the utilities sector rose to 82.9 percent.

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