Sunday, 26 of March of 2017

Economics. Explained.  

Category » Industrial Production

Durable Goods Orders

March 24, 2017

Durable Goods Orders -- Change

Durable goods orders rose 1.7% in February after having climbed 2.3% in January.   As always this is a very volatile series.  Over the course of the past year durables have risen 5.0% which is the largest year-over-year increase since mid-2014..

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was certainly the case in recent months.  Transportation orders rose 7.0% in January and a further 4.3% in February. This means that non-transportation orders rose 0.4% in February after having risen 0.2% in January.  Over the past year non-transportation orders have risen 3.8% and they seem to be quickening.  In the past six months they have been climbing at a 7.5% pace, and in the past three months at a 5.6% rate.

Durable Goods Orders -- Ex Transportation

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 fell 0.2% in February after having risen 0.1% in January.  Over the course of the past year such orders have risen 2.7% which is the biggest yearly increase since mid-2014.  At long last they certainly seem to be on the rise.

Durable Goods Orders -- Nondef cap, ex air -- ChangeJPG

The backlog of orders was unchanged in February after having fallen 0.3% in January.  If orders begin to climb consistently the backlog will climb as well which will eventually boost production.   We are not looking for a lot of strength from the manufacturing sector this year, but we do expect it to continue its gradual uptrend.

Durable Goods Orders -- Backlog

We think the worst is over for the manufacturing sector.   Home prices are rising.  Consumer net worth is at a record high level.  Corporations are making near record profits.  They have a ton of cash to invest.  Interest rates are near historic lows.  And 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.  And with both corporate and consumer tax cuts now in the works the factory sector should get a boost in 2017.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  3.1% in 2017 and 4.8% in 2018.

Stephen Slifer


Charleston, SC

Industrial Production

March 17, 2017

Industrial Production (pch)

Industrial production was unchanged in February after having declined 0.1% in January.  On the surface that is unimpressive, but it masks a significant rebound in manufacturing activity.  In both months the unseasonably mild winter weather conditions caused utility output to decline about 5.5%.  If utility output had been unchanged in both  months overall industrial production would have risen 0.6% in February after having risen 0.5% in January.  Gains of that magnitude would create an entirely different impression of what is happening in the production sector.  We know that the weather has already returned to normal throughout most of the country, so March and April are likely to see out-sized gains in production of perhaps 1.0% in each month.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 0.5% in both January and February. During the past year  factory output has risen 1.2% (red line, right scale).  It has clearly hit bottom.  While it has risen 1.2% in the past year, it has climbed at a 3.3% pace in the past six months, and an impressive 4.8% pace in the past three months.

Industrial Production -- Mfg

Mining (14%) output jumped 2.7% in February after having climbed 2.2% in January.   Over the past year mining output has risen 1.8%%.  But over the past three months mining production has actually increased at a 14.0% pace.

Most of the recent upturn in mining has been concentrated in oil and gas drilling activity  which rose 7.1% in January after having risen 8.5% in January.  It has now risen for nine consecutive months.  Over the course of the past year oil and gas well drilling has risen 31.0%.  The number of  oil rigs in operation continues to climb.

Industrial Production -- Oil and Gas Well Drilling

Utilities output fell 5.7% in February after having declined 5.7% in January because the weather was far above normal in both months.  However, the weather has returned to normal, or even a bit below normal,in March so we should expect sizable increases in  utility output in each of the next couple of months.

Production of high tech equipment rose 0.2% in February after having declined 0.2% in January.  Over the past year high tech has risen 6.5%.   The high sector sector appears to have gathered some momentum during the past several months. This may be an early indication that the long slide in nonresidential investment may be coming to an end which would, in turn, signal some upturn in productivity growth.

Industrial Production -- High Tech

Capacity utilization in the manufacturing sector rose 0.3% in February to 75.6%.  It is still below the 77.5% that is generally regarded as effective peak capacity.  Above that level the factory sector is running too hot and prices begin to rise.  While we are a  ways from that so-called danger level, the reality is that manufacturing capacity is growing by about 0.1% per month while manufacturing output is rising by about 0.4%.  Thus, going forward the utilization rate in the manufacturing sector should rise about 0.3% per month.  At that pace, the utilization rate will hit that so-called “full employment” threshold by late summer or the fall.

Capacity Utilization

Stephen Slifer


Charleston, SC

Commercial and Industrial Loans

July 18, 2016

c & I Loans Growth

Commercial and industrial loans, which are more commonly called “business loans”  climbed at a 3.6% pace in June  (the light green bars on the left scale).   Business loans have been growing rapidly for four years.  The year-over-year growth rate is currently very robust  at 9.6% pace  (green line on the right scale).

What is NOT new is banks’ willingness to extend credit to businesses.  But since the beginning of last year banks have also been willing to pick up the pace of lending to consumers both in the form of mortgage credit as well as consumer installment loans.  As a result total bank lending has risen 7.8%.  This increased borrowing activity reflects not only banks’ willingness to lend, but consumers’ willingness to borrow.  This reasonably rapid pace of credit expansion should help to produce 2.2% GDP growth in 2016.

Total Loans -- Growth

Stephen Slifer


Charleston, SC