US industrial production in August disappoints

Yesterday's Federal Reserve report on US industrial production again disappointed economists. Production rose 0.1 percent in August, below forecasts for a 0.5 percent gain. Capacity utilisation was 77.3 percent in August, the same as the previous month.

Mitigating the disappointment is the news that July's output was revised up to 0.6 percent from 0.4 percent. Also, manufacturing output grew 0.5 percent in August and factories operated at 76.8 percent of their full capacity, the highest rate since March 2001.

A separate report showed that US business inventories rose 0.9 percent while retail inventories rose 0.6 percent in July. Whether the increases foreshadow a decline in production or an increase in demand, however, is still a matter of debate.

See "Industrial Production Nearly Stalls".

What seemed most significant to me, though, is that the general trend of disappointing economic and financial indicators remains more or less intact.

Yesterday's falls notwithstanding, US stock markets had recently given indications that they may be getting ready for a breakout from the current trading range. In my opinion, an economic slowdown by itself would not have precluded a stock market rally.

However, as long as economists and analysts remain overoptimistic about the economy, I don't see how a major rally in stocks can occur.