Thursday, 22 of February of 2018

Economics. Explained.  

Category » Industrial Production

Industrial Production

February 15, 2018

Industrial production declined 0.1% in January, but that follows increase of  1.7% in October, 0.3% in November and 0.4% in December.   The strength in the final three months of last year probably reflects post-hurricane rebuilding which probably shifted some production forward into the final quarter of last year from the first quarter of this year.  During the past year industrial production has risen 3.7%.  It is gradually gathering momentum.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) was unchanged in both December and January. During the past year  factory output has risen 1.8% (red line, right scale).  The 2.3% year-over-year increase for November was the largest 12-month increase since July 2014.  The factory sector is clearly staging a modest pickup.

Auto output rose 0.6% in January after having increased 1.1% in December.    During the past year motor vehicle production has risen 1.4%.  Factory production ex motor vehicles has risen 3.8% in the past year.  Thus, factory output has been climbing, but its rate of increase in the past year has been curtailed by a  slowdown in the sales and production of motor vehicles.

Mining (14%) output declined 1.0% in January after having fallen 0.4% in December.  Over the past year mining output has risen 8.8%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling declined 1.4% in January after having risen 0.9% in December.     Over the course of the past year oil and gas well drilling has risen 31.2%.  The number of  oil rigs in operation has rebounded in recent months.  Drilling activity is poised to resume its upward trajectory.

Utilities output rose 0.6% in January after having jumped 4.6% in December.  During the past year utility output has risen 10.8%.

Production of high tech equipment rose 0.9% in January after having risen 2.2%, 2.0% and 1.8% in the October, November, December period.  Over the past year high tech has risen 7.9%, but in the past three  months high tech production has climbed at a steamy 19.2% pace.   Thus, the high tech sector sector appears to have gathered considerable momentum in recent months. 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 was unchanged in January at 76.2%.  It is slightly below the 77.4% that is generally regarded as effective peak capacity.

Stephen Slifer


Charleston, SC

Durable Goods Orders

January 26, 2018

Durable goods orders jumped 2.9% in December after having risen 1.7% in November.  As always this is a very volatile series.  Over the course of the past year durables have risen 11.5%.

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 jumped 7.4% in December after having risen 4.6% in November. This means that non-transportation orders rose 0.6% in December after having risen 0.3% in November.  Over the past year non-transportation orders have risen 8.1%.  This series has been steadily rising for the past year and is now climbing at the fastest rate we have seen since December 2011 (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 0.3% in December after having risen 0.2% November.  Over the course of the past year such orders have risen 8.4%.  At long last these orders seem to be rising at a  respectable clip which bodes well for a faster pacer of investment spending and positive growth in productivity.

The backlog of orders jumped 0.6% in December after having risen 0.1% in November.  If orders continue 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 in 2018, 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.  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 2018.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  7.0% in 2018.

Stephen Slifer


Charleston, SC

Commercial and Industrial Loans

January 3, 2018

Commercial and industrial loans, which are more commonly called “business loans”  declined at a 1.8% pace in November after having risen 0.9% in October and 6.5% in September (the light green bars on the left scale).   The year-over-year growth rate has snow lipped to a 0.9% pace  (green line on the right scale).  However in the past six months C&I loans have risen at a 2.1% pace and in the past three months at a 1.8% pace so growth appears to have quickened just a bit in recent months.

Total loan growth had 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 3,7% in the past year, but having climbed at a 5.0% pace in the past six months and a 5.9% rate in the past three months it appears that bank lending is accelerating.

Stephen Slifer


Charleston, SC