Implications: Today's report on the factory sector was very deceptive. Industrial production was unchanged in February, much less than the consensus expected, but prior months were revised up by 0.3%. Strength in the factory sector was obscured by a 1.1% drop in mining output. In addition utility output, because of warmer weather, was unchanged. Taking out utilities and mining leaves just the manufacturing sector, which rose 0.2% in February and 0.7% including upward revisions for prior months. Higher production is making factories use higher levels of capacity. Utilization in manufacturing is now at 77.4%, the highest since March 2008 and near the 20-year average of 77.7%. As capacity use moves higher, firms have an increasing incentive to invest in more plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments.
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