This morning the Federal Reserve released its report on Industrial Production and Capacity Utilization for January.

The Fed's Index of Industrial Production measures the total output of the nation's factories, utilities, mines, and oil and gas wells. It is one of the four components of the Commerce Department's Composite Index of Coincident Economic Indicators.

Depending on your time horizon, the index is telling us that the current state of the economy lies somewhere between torpid and terrible. From January 1995 to January 1996, the index gained only 0.1%. January's reading of 121.9 was the lowest in six months. And, during January, the index dropped a whopping 0.6%, the worst monthly decline in nearly 5 years. The Fed report attributed the January drop, in part, to the Great Blizzard of '96. I guess we'll just have to see a few more months of data to test that hypothesis.

Today's release also included the Fed's report on Capacity Utilization for January. Capacity Utilization measures the percentage of the nation's productive capacity that was employed during the month. Between December and January, capacity utilization fell from 82.7% to 81.9%. In January of 1995, capacity utilization hit a peak of 85.1%. Since then it declined by 3.2%.

Capacity utilization and the unemployment rate are inversely related to one another. When one falls the other one rises, and vice-versa. A glance at a chart of the year-to-year percentage change in the 4-week moving average of new claims for unemployment insurance provides a graphic illustration of this relationship. Between January 1995 and the present, this parameter trended upward from -12% to +18%.

Today the Census Bureau of the Department of Commerce released its report on another one of the four components of the Composite Index of Coincident Economic Indicators. Manufacturing and Trade Sales for November were up 0.7% from October. For the first 11 months of 1995, sales grew at an annualized rate of 3.6%. This compares with growth rates of 4.24%, 5.66%, and 7.87% in 1992, 1993, and 1994.

Manufacturing and Trade Inventories rose 0.1% from October to November. From November 1994 to Nov 1995, inventories rose by 7.3%. So, it appears that slowing sales are causing goods to stack up.

The Commerce Department is still playing catch up on the Manufacturing and Trade Sales and Inventory Data. But, it is catching up. The data for December will be released on February 28.

In other news today, the Survey Research Center at the University of Michigan released its preliminary index of consumer sentiment for February. In February the index fell to 86.6 from a reading of 89.3 in January. This index peaked at 94.4 last July.

U of M also surveys consumers' opinions on the condition of their family finances a year from now, the state of the economy during the coming year, and the status of the economy five years from now. The results of these questions are combined to produce the Center's Consumer Expectations Index. This index is one of 11 indicators that the Department of Commerce uses in its Composite Index of Leading Economic Indicators. From December to January, this index tumbled from 83.7 to 78.4. Then, from January to February, it fell still further to 74.6. The survey participants are not very confident about their economic futures.

Summing up: The nation's industrial output is, at best, flat. The utilization of the nation's productive capacity has been falling for a year. Sales by manufacturers, wholesalers and retailers are slow and unsold goods are stacking up. Consumers expect that their economic security will erode in the coming years. Is this the soft landing everyone has been talking about?

Byline: Lafferty (MF Merlin)