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Industrial Production

June 15, 2017

Industrial production was unchanged in May after having jumped 1.1% in April.  Over the past year this series has risen 2.2% and is clearly on the upswing.

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 May after having surged by 1.0% in April. During the past year  factory output has risen 1.4% (red line, right scale).  It has clearly hit bottom.

Mining (14%) output rose 1.6% in May after having climbed by 1.5% in April.   Over the past year mining output has risen 8.3%.

Most of the recent upturn in mining has been concentrated in oil and gas drilling activity  which rose 3.8% in May after having increase 9.0% in April.  It has now risen for twelve consecutive months.  Over the course of the past year oil and gas well drilling has risen 100.5%.  The number of  oil rigs in operation continues to climb.

Utilities output  rose 0.4% in May after having risen 0.7% in April.

Production of high tech equipment was unchanged in May after having climbed by 1.3% in April.  Over the past year high tech has risen 7.0%.   The high tech 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.

Capacity utilization in the manufacturing sector declined 0.3% in May to 75.5 after having jumped 0.8% in April.  It is still below the 77.5% that is generally regarded as effective peak capacity but it is beginning to close the gap.  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%.

Stephen Slifer

NumberNomics

Charleston, SC


Durable Goods Orders

May 26, 2017

Durable goods orders declined 0.7% in April after having risen 2.3% in March.   As always this is a very volatile series.  Over the course of the past year durables have risen 0.9%.

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 3.6% in February, and 5.3% in March and declined 1.2% in April. This means that non-transportation orders rose 0.7% in February, 0.8% in March, but declined 0.4% in April.  Over the past year non-transportation orders have risen 5.4% and they seem to be quickening.

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 were unchanged in both March and April.  Over the course of the past year such orders have risen 2.9% which is the biggest yearly increase since mid-2014.  At long last they certainly seem to be on the rise.

The backlog of orders rose 0.2% in April after having risen 0.3% in March.  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.

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  5.2% in 2017 and 4.9% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Commercial and Industrial Loans

May 24, 2017

Commercial and industrial loans, which are more commonly called “business loans”  climbed at a 5.6% growth rate in April after having declined at an 8.3% pace in March (the light green bars on the left scale).   The year-over-year growth rate has snow lipped to a 2.6% pace  (green line on the right scale).

Total loan growth has been slowing for all types of bank lending — consumer , real estate, and commercial and industrial loans.  Given that the slowdown began right after the election it is possible that it is connected to the uncertain fate of Dodd-Frank legislation under Trump.  Right now with total loans having grown 4.1% in the past year and nominal GDP growing at that exact same pace, loan growth is not slowing the economy.  But if the extreme slowdown in recent months should continue it could have that effect.

Stephen Slifer

NumberNomics

Charleston, SC