Tuesday, 22 of January of 2019

Economics. Explained.  

Category » Industrial Production

Industrial Production

January 18, 2019

Industrial production rose 0.3% in December after having risen 0.4%  in November.   During the past year industrial production has risen 4.0%.  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) jumped 1.1% in December after having climbed 0.1% in November.  The December increase was led by a 4.7% increase in motor vehicle production.  During the past year  factory output has risen 3.2% (red line, right scale).   As 2018 came to a close factory activity seemed upbeat.  Thus far, no hint of a slowdown from this sector of the economy.

Mining (14%) output rose 1.5% in December after having gained 1.1% in November.  Over the past year mining production 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 0.3% in December after having risen 0.1% in November.     Over the course of the past year oil and gas well drilling has risen 18.2%.

Utilities output plunged 6.3% in December as relatively warm weather trimmed the need for heating.  Utility output rose 1.3% in November.  During the past year utility output has declined 4.3%.

Production of high tech equipment climbed 1.0% in December after having risen 0.5% in November.  Over the past year high tech has risen 5.6%.  Thus, the high tech sector sector appears to be expanding nicely. This is an indication that nonresidential investment is continuing to climb which is, in turn, a signal of renewed growth in productivity.

Capacity utilization in the manufacturing sector rose 0.8% in December to 76.6%.  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

Durable Goods Orders

December 21, 2018

Durable goods orders rose 0.8% in November after having plunged 4.3% in October.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen a solid 5.3%, although that is a slightly slower pace than earlier in the year.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was  the case in November as transportation orders rose 2.9%.   This means that non-transportation orders declined 0.3% in November after having risen 0.4% in October.  These orders had been steadily rising at rates generally between 7.0-9.0% (red line) earlier in the year, but have slipped in recent months to a year-over-year increase currently of 5.0%.

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 0.6% in November after having risen 0.5% in October.  Over the course of the past year such orders have risen 6.5%.  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 fell 0.1% in November after having declined 0.2% in October after having risen sharply in August and September.  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.  The economy is cranking out 190 thousand jobs per month.    Corporations are making near record profits.  Interest rates remain relatively low even with the recent Fed tightening.  The tight labor market should induce firms to spend money on technology in 2019 to boost output.  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 grow moderately in 2019.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  7.2% in 2018 and 6.5% in 2019.

Stephen Slifer


Charleston, SC

Commercial and Industrial Loans

December 3, 2018

Commercial and industrial loans, which are more commonly called “business loans”  rose 8.8% in October after having risen just 0.5% in September (the light green bars on the left scale).   The year-over-year growth rate has now quickened  to a 5.8% 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  4.4% pace in the past year.  That is respectable growth without being excessive.

Stephen Slifer


Charleston, SC