Monday, 25 of March of 2019

Economics. Explained.  

Category » Industrial Production

Industrial Production

March 15, 2019

Industrial production rose 0.1% in February after having declined 0.4% in January.   During the past year industrial production has risen 3.5%.  Despite monthly wiggles, production continues to trend upwards slowly.  However, it also appears that its factory production is being curtailed by the trade sector and the impact of tariffs on both firms that import goods from overseas as well as firms that export goods to other countries because of their tit-for-tat increase in tariffs.  Slower growth in exports will not have a major impact on GDP growth in this country, but it is becoming more and more noticeable.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) fell 0.4% in February after having declined 0.5% in January.  Some of the drop in January and February is attributable to a falloff in motor vehicle production which should be reversed in the months ahead.  During the past year  factory output has risen 1.0% (red line, right scale).   Factory activity in January and February hit a speed bump, but given that it occurred in the wake of a 20% selloff in the stock market, a Fed rate hike in that month, and the beginning of a government shutdown, it should perhaps not be too surprising.  But because the stock market has already recovered most of what it lost in the fourth quarter, the Fed has promised to refrain from further rate hikes for the foreseeable future, and the shutdown has finally come to an end, manufacturing activity should rebound in the months ahead.  However, the slower growth attributable to tariffs and the trade sector will be longer-lasting, but moderate.

Mining (14%) output rose 0.3% in both January and February.  Over the past year mining production has risen 12.5%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling which jumped 2.8% after having fallen 0.9% in January.     Over the course of the past year oil and gas well drilling has risen 11.1%.

Utilities output jumped 3.7% in February after having declined 0.9% in January and having plunged 5.2% in December as relatively warm weather trimmed the need for heating.  During the past year utility output has risen 9.0%.

Production of high tech equipment was unchanged in February after having declined in each of the previous five months.  Over the past year high tech has risen 3.7% but obviously its growth rate recently has been slowing down.  It is possible that the slower growth in this category reflects reduced demand for technological products from outside of the U.S. where economic activity has slowed noticeably.   We need to see renewed vigor in this sector if we are going to see the continuing strength in nonresidential investment that will be required for a sustained pickup in productivity.

Capacity utilization in the manufacturing sector fell 0.4% in February to 75.4% after having declined 0.4% in December.  It remains somewhat below the 77.4% level that is generally regarded as effective peak capacity.  However, factory owners will soon have to spend more money on technology and re-furbishing or expanding their assembly lines to boost output.

Stephen Slifer


Charleston, SC

Durable Goods Orders

March 13, 2019

Durable goods orders rose 0.4% in January after having risen 1.3% in December.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen a solid 8.4%.  Our sense is that orders will continue to grow slowly in the months ahead.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was  the case in December as transportation orders rose 3.3% and in January when such orders climbed by 1.2%.   This means that non-transportation orders fell 0.1% in January after having risen 0.3% in December.  These orders had been steadily rising at rates generally between 7.0-9.0% (red line) earlier in the year, but have slipped in recent months to a year-over-year increase currently of 4.4%.

Economists are also interested in capital goods orders so we can get some sort of a handle on the investment spending portion of GDP.  But even capital goods orders can get blown around from one month to the next if there is a huge defense order or if there is a big airline order.  Orders will rise very sharply one month, only to decline almost as sharply in the subsequent month.  Thus, the focus is typically on non-defense capital goods orders ex air.  These orders rose 0.8% in January after having declined 0.9% in December.  Over the course of the past year such orders have risen 4.1%.  These orders seem to be rising at a moderate pace which bodes well for continued sustained growth in investment spending and positive growth in productivity.

The backlog of orders rose 0.1% in January after having declined 0.1% in November.  If orders continue to climb consistently the backlog will climb as well, which will continue to boost production.   We are not looking for a lot of strength from the manufacturing sector in 2019, but we do expect it to continue its gradual uptrend.

We think that the manufacturing sector is on a slow but steady uptrend.  The economy is cranking out 190 thousand jobs per month.    The tight labor market should induce firms to spend money on technology in 2019 to boost output.  The rate of capacity utilization in the manufacturing sector suggests a need fairly soon to either re-furbish the assembly line and/or invest in new technology.  Corporations are making solid profits.  Interest rates remain relatively low.  Inflation remains close to the Fed’s target.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  6.5% in 2019.

Stephen Slifer


Charleston, SC

Commercial and Industrial Loans

December 3, 2018

Commercial and industrial loans, which are more commonly called “business loans”  rose 8.8% in October after having risen just 0.5% in September (the light green bars on the left scale).   The year-over-year growth rate has now quickened  to a 5.8% pace  (green line on the right scale).  That is the fastest four-quarter growth rate for C&I loans since early 2017.

Led by the faster rate of growth for business loans and a pickup in consumer lending, total loan growth has picked up to a  4.4% pace in the past year.  That is respectable growth without being excessive.

Stephen Slifer


Charleston, SC