Industrial production rose 0.9% in October after a revised 0.4% in September. In reference to the discrepancy between industrial production and the regional Fed manufacturing reports, Econoday says “The last piece has fallen into place.” What’s the real story?
When I went to bed early this morning the futures were jumping. I figured the report was good, but how good? This is what Econoday had to say.
The last piece has fallen into place. The manufacturing component of the industrial production has not been confirming the enormous strength of regional and private surveys nor recent acceleration in factory orders data, that is not until October’s 1.3 percent surge and a 3 tenths upward revision to September which is now at 0.4 percent. Manufacturing makes up the vast bulk of the industrial production report where October’s headline gain is a higher-than-expected 0.9 percent with capacity utilization up 6 tenths to 77.0 percent.
Motor vehicles are a major positive for manufacturing production, putting together a string of sharp gains including a 1.0 percent October increase. And recent gains in auto sales, in part tied to hurricane-replacement demand, point to continued strength. Selected hi-tech is another center of strength, also showing a string of gains including 1.1 percent in the latest month.
The report’s mining component has been uneven in recent months, down 1.3 percent in October, but the year-on-year gain is still formidable at 6.4 percent. Utilities have also been uneven, bouncing 2.0 percent higher and helping to offset the step back for mining. Year-on-year, utility production is up a modest 0.9 percent.
The yearly gain for manufacturing is still moderate at 2.5 percent but all the indications from the factory sector are pointing to acceleration going into year end, an upward pivot that should give a special boost to fourth-quarter GDP.
That’s quite a glowing analysis. Here are some charts from the Fed’s October G.17 report on Industrial Production and Capacity Utilization.