US Industrial Production Rose in February

U.S. industrial production rose 0.1% in February, beating market expectations for a flat reading. The increase follows the growth of 0.9% seen in January and continues a string of eight-straight monthly increases. The capacity utilization rate increased to 72.7% from January’s 72.5% (revised from 72.6%), higher than the 72.6% expected by markets.

February’s rise in industrial production was concentrated in the mining and utilities industries with both posting solid increases in the month of 2.0% and 0.5%, respectively. Providing a partial offset, manufacturing output fell 0.2%, led by a 4.4% decline in motor vehicles and parts production. The capacity utilization rate saw similar industry trends, as it increased in mining and utilities industries and decreased in manufacturing.

The decline in manufacturing production comes against the backdrop of a sizable drop in the manufacturing workweek to 39.5 hours from 39.9 hours in January, which was possibly due to the blizzards that wreaked havoc in the Northeast in the early part of the month. As a result, February’s report does not necessarily indicate a step back in the recovery but instead reflects the transitory effect of the adverse weather on the economy in February. Capacity utilization remains at historically low levels and combined with high unemployment in the United States, these low levels of resource usage should limit inflationary pressures and allow the Fed to concentrate on ensuring that the recovery builds momentum. We expect that the Fed funds will likely remain in the current range of 0.00% to 0.25% until the end of 2010.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.