Saturday, 21 of October of 2017

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Category » Industrial Production

Industrial Production

October 17, 2017

Industrial production rose 0.3% in September after having declined 0.7% in August.  Clearly, Hurricane Harvey, which devastated Texas from August 25-29 crushed overall production in that month  followed by Irma in mid-September.  It will take another couple of months to determine exactly where the production sector stands after the hurricanes.  Over the past year this series has risen 1.6%.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 0.1% in September after having declined 0.2% in August. During the past year  factory output has risen 1.o% (red line, right scale).  It has clearly hit bottom, but its rebound has been muted.

The manufacturing category has been dragged down by recent cuts in the production of motor vehicles.  However, car and truck sales surged in October because all those vehicles lost during the two hurricanes have to be replaced.  A pickup in production will not be far behind.

Auto output rose 0.1% in September after having jumped 3.6% in August but it has declined 3.2% during the past year.  Industrial production ex motor vehicles has risen 1.9% in the past year.  Thus, factory output has been climbing, but its rate of increase has been curtailed by the first  half of the year  slowdown in the sales and production of motor vehicles.

Mining (14%) output rose 0.4% in September after having fallen 0.2% in August.   Over the past year mining output has risen 9.8%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity , however, oil and gas drilling fell 2.8% in  September after having declined 3.8% in August much of which undoubtedly reflects the impact of Hurricane Harvey on the Gulf Coast.   Output in this category rose in every month from June 2016 through June 2017 — thirteen consecutive months.  Over the course of the past year oil and gas well drilling has risen 76.4%.  The number of  oil rigs in operation continues to climb.

Utilities output  climbed by 1.5% in September after having plunged by 4.9% in August.  The August drop also seems to reflect the inability of utility companies to keep the lights on during Hurricane Harvey  During the past year utility output has fallen 4.1%.

Production of high tech equipment rose 1.7% in September after having climbed by 0.4% in August.  Over the past year high tech has risen 2.3%.   The high tech sector sector appears to have gathered some momentum in recent 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 was unchanged in September at 75.1%.  It is still below the 77.5% that is generally regarded as effective peak capacity.

Stephen Slifer


Charleston, SC

Durable Goods Orders

September 27, 2017

Durable goods orders rose 1.7% in August after having declined 6.8% in July after having jumped 6.4% in June.  As always this is a very volatile series.  Over the course of the past year durables have risen 5.1%.

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 4.9% in August. This means that non-transportation orders rose 0.2% in August after having risen 0.8% in July.  Over the past year non-transportation orders have risen 6.2%.  This series has been steadily rising for the past year and is now climbing at the fastest rate we have seen in the past five years (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 rose 0.9% in August after having risen 1.1% in July.  Over the course of the past year such orders have risen 3.6%.  At long last these orders seem to be rising slowly which bodes well for positive growth in productivity.

The backlog of orders was unchanged in August after having declined 0.3% in July after having jumped 1.3% in June.  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 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 2017.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  5.6% in 2017 and 4.9% in 2018.

Stephen Slifer


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


Charleston, SC