John Silvia, Chief Economist

john.silvia@wachovia.com ● 704-374-7034

February 18, 2009

Industrial Production: Autos Drove Output Lower, Recession Persists

Industrial production fell 1.8 percent in January due to a big drop in auto production as well as weakness in
machinery, computers and mining. Construction supplies fell, consistent with the housing correction. Capacity
utilization levels dropped again suggesting continued weak profits. Data are consistent with our recession outlook.
Broad-based Weakness in Manufacturing Capacity Utilization: A Weaker Profits Signal
• Manufacturing production declined 13 percent compared to a • Unfortunately, the weakness in business equipment reflects the
year ago with weakness in autos, machinery and computers. fundamental deficiency in corporate profits and a lack of
Materials output were down 11 percent. business confidence in the future.
• Auto output plunged 23 percent and is down over 43 percent • Lower capacity utilization rates suggest weaker corporate
compared to a year ago. Both cyclical and structural factors profits. There has been a sharp drop-off in utilization in many
are at work. Autos have a long workout ahead. sectors including computers and materials.

Total Industrial Production Growth Industrial Production -- Business Equipment

Output Growth by Volume, not Revenue Output Growth by Volume, not Revenue
15% 15% 30% 30%
Both Series are 3-Month Moving Averages Both Series are 3-Month Moving Averages

10% 10% 20% 20%

5% 5% 10% 10%

0% 0% 0% 0%

-5% -5% -10% -10%

-10% -10% -20% -20%

-15% -15% -30% -30%

3-Month Annual Rate: Jan @ -13.8% 3-Month Annual Rate: Jan @ -8.3%
Year-over-Year Change: Jan @ -8.0% Yr/Yr % Change: Jan @ -9.0%
-20% -20% -40% -40%
87 89 91 93 95 97 99 01 03 05 07 09 87 89 91 93 95 97 99 01 03 05 07 09

Industrial Production -- Motor Vehicles & Parts Capacity Utilization -- Stage of Processing
Output Growth by Volume, not Revenue Percent of Capacity
100% 100% 95% 95%
Both Series are 3-Month Moving Averages
Series are 3-Month Moving Averages

80% 80%
90% 90%
60% 60%
85% 85%
40% 40%

20% 20% 80% 80%

0% 0%
75% 75%
-20% -20%
70% 70%
-40% -40% Finished: Jan @ 69.3%
3-Month Annual Rate: Jan @ -47.9% Crude: Jan @ 83.9%
Yr/Yr % Change: Jan @ -29.8% Primary: Jan @ 70.4%
-60% -60% 65% 65%
87 89 91 93 95 97 99 01 03 05 07 09 87 89 91 93 95 97 99 01 03 05 07 09

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