Tucked away in last week’s report on industrial production from the Federal Reserve was an important piece of news: Manufacturers, miners and utility companies don’t seem as optimistic as monetary policy makers are that 2015 will be a markedly better year for the economy.
As Bloomberg reports, industrial producers are scaling back their expansion plans for this year even as Fed officials forecast faster economic growth. Since less investment is often interpreted as diminishing confidence for future demand, the two outlooks are a little hard to square.
Industrial companies will raise capacity by 1.8% in 2015, the smallest increase since 2011, after boosting it 3.1% in 2014, the Fed said in its Feb. 18 release on production. The central bank’s projections are based on an amalgam of information from trade associations and its own forecasts. They are carried out separately from the economic forecasting process undertaken by staff for the central bank’s Federal Open Market Committee.
The projections are important nonetheless because they provide a clue to companies’ capital spending plans, a key component of gross domestic product. Such outlays by industrial companies accounted for more than a third of business investment in 2013, according to the Census Bureau.
The slowdown in expansion plans is surprising in that companies are running their factories and plants closer to full capacity than before, Bloomberg notes. Those facilities operated at 79.4% of capacity in January, up from 78.1% a year earlier, based on data from the central bank.
The steepest reduction in spending intentions is in the mining industry, which includes oil producers sideswiped by tumbling prices. Miners are expected to raise capacity by 3.3% in 2015, after expanding it 9.2% in 2014, the Fed said. Read the full story.
