Thursday, 15 of November of 2018

Economics. Explained.  

Category » Industrial Production

Durable Goods Orders

October 25, 2018

Durable goods orders rose 0.8% in September after having jumped 4.6% in August.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen a solid 7.9%.

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 1.9% in September after having jumped 13.2% in August.   This means that non-transportation orders rose 0.1% in September after climbing 0.3% in August.  These orders have been steadily rising for the past year (7.2%) at rates between 7.0-9.0% (red line).

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 0.1% in August after having declined 0.2% in August and having risen 1.5% in July.  Over the course of the past year such orders have risen 1.9%.  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 0.8% in September after having jumped 0.9% in August.  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.   Home prices are rising at a  moderate pace.  Consumer net worth is at a record high level.  Corporations are making near record profits.  Interest rates remain relatively low.  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 2018 and 2019.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  8.1% in 2018 and 6.3% in 2019.

Stephen Slifer


Charleston, SC

Industrial Production

October 16, 2018

Industrial production rose 0.3% in September after having risen 0.4% in August.   During the past year industrial production has risen 5.1%.  A growth rate of that magnitude was last seen in November 2010.  So despite monthly wiggles, production continues to trend upwards.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 0.2% in September after having risen 0.3% in August.  During the past year  factory output has risen 3.5% (red line, right scale).    The factory sector is clearly gathering considerable momentum.

Mining (14%) output rose 0.5% in September after having climbed 0.4% in August.  Over the past year mining output has risen 13.4%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling fell 1.4% in September after having declined 0.5% in August.     Over the course of the past year oil and gas well drilling has risen 13.5%.

Utilities output was unchanged in September after having risen 1.1% in August.  During the past year utility output has risen 5.4%.

Production of high tech equipment jumped 0.6% in September after having risen 0.3% in August.  Over the past year high tech has risen 6.9%.  Thus, the high tech sector sector appears to be expanding nicely. This is an indication that the long slide in nonresidential investment has come to an end which would, in turn, signal an upturn in productivity growth.

Capacity utilization in the manufacturing sector rose 0.1% in September to 75.9%%.  It remains 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

Commercial and Industrial Loans

August 27, 2018

Commercial and industrial loans, which are more commonly called “business loans”  rose 9.0% in July after having risen 10.9% in June (the light green bars on the left scale).   The year-over-year growth rate has now quickened  to a 6.0% 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  4.9% pace in the past year.  That is respectable growth without being excessive.

Stephen Slifer


Charleston, SC