Slow But Steady Growth Despite Mixed Signals on Inventories and Industry Production

Despite January production figures that remained unchanged in the face of a forecast 0.4% increase, the overall business production outlook is showing some strength, according to a new report released by ThinkEquity Partners.

The report forecasts continued production activity and business investment to be the norm for the next several months. Total production is up 4% over last year, and manufacturing production is up 5.3% over last year, reflecting a gradual but steady rise in both since November 2001. All these figures translate to a GDP growth rate of 1.9% for January 2005.

According to the ThinkEquity report, businesses overall reduced inventories last year to a slower rate than end-market demand, so that business activity is now “actively re-engaging with end markets,” with investment fueling the increased pace of engagement. Inventories across industries remain low, a condition that augurs well for continued production activity throughout 2005.

The outlook appears stronger for communications equipment, computers and office equipment, and semiconductors and related components in particular. On the other hand, consumer activity is rather spotty, and capacity utilization, at 79.0% last November, has yet to return to its November 2000 level of almost 81%.

The IT sector saw its thirteenth consecutive monthly increase in production in January, for a total of 12% over last year’s figures. IT equipment and industrial equipment made a particularly strong showing in January, rising 1.1% and 1.2%, respectively. Consumer electronics production remains sluggish, -5.7% below last year.

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