FX Ignores Larger than Expected Rise in Nov US IP

Industrial output rose 0.8% in November, the most in 3 months but the dollar largely seems unaffected. The dollar had strengthened sharply against most of the major currencies earlier but had begun seeing those gains pared and that has continued after the industrial output data.

Manufacturing output rose an impressive 1.1% after a 0.2% decline in October. Strengths were seen in business equipment and computers/electronics, as both were up 0.4%. Utility output constrained the headline rise by falling 1.8% after rise in 1.7% in Oct. This may be reversed in December especially given the snowstorms that hit the midwest. Mining and drilling output rose 2.1%, which is the strongest since Oct 2008.

Auto output, including parts rose 1.8% in November after the 1.8% fall in October. Given the volatility of the series, it is difficult to draw a hard conclusion, but if some preliminary signs suggest that the inventory cycle may be turning and this may help account for some increased output figures. Excluding the auto sector, factory output still rose 1.1%. Construction and business supplies made a positive contribution.

Capacity utilization, which the Fed's statement will cite (resource utilization) rose to 71.#% from a slightly downward revised 70.6% in October (from 70.7%). This slack is still too much to suggest a urgent need to boost capital investment let alone inflation.