Today the Federal Reserve released its report on Industrial Production and Capacity Utilization for December 1995.

The Fed's Index of Industrial Production measures the output of the nation's factories, utilities, mines, and oil and gas wells. Over the years, the Index has proven to be a reliable measure of the current state of the overall economy. It is one of the four indicators that the Department of Commerce uses in generating its monthly Composite Index of Coincident Economic Indicators.

In December, the Index of Industrial Production rose only 0.1%. Had it not been for the return of the striking Boeing workers, the Index would have been flat for the month. The Index grew at an average annual rate of 4.9% from the end of the 1990-91 recession to February 1995. December's Index reading of 122.8 translates into an annualized rise of only 1.08% between February and December.

Today's release also contained the Fed's report on Capacity Utilization for the month of December. Capacity Utilization measures the percentage of the nation's productive capacity that was employed during the month. The figure for December was 82.8%, down from a revised reading of 83.0% for November. Capacity Utilization peaked at 85.1% in January 1995 and has been in a pronounced down trend since then.

Historically, there is an inverse relationship between Capacity Utilization and the unemployment rate. That relationship is currently manifesting itself in the shrinking employment numbers reported by the manufacturing sector.

In another news release today, the Commerce Department's Bureau of the Census reported that sales of new single-family homes declined by 2.1% in November. This was the fourth drop in as many months. For most families, the commitment to buy a house is the biggest investment decision they will ever make. Based on recent data, it appears that fewer and fewer families have sufficient confidence in their economic futures to take the plunge on the purchase of a new home.

Byline: Lafferty (MF Merlin)