Monday, 11 of December of 2017

Economics. Explained.  

Category » Industrial Production

Durable Goods Orders

November 22, 2017

Durable goods orders fell 1.2%  in October after having risen 2.2% in September and 2.1% in August.  As always this is a very volatile series.  Over the course of the past year durables have risen 1.0%.

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 fell 4.3% in October after  having climbed 4.4% in September. This means that non-transportation orders climbed by 0.4% in October after having risen 1.1% in September.  Over the past year non-transportation orders have risen 7.4%.  This series has been steadily rising for the past year and is now climbing at the fastest rate we have seen since January 2012 (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 0.5% in October after having risen 2.1%% in September, 1.4% in August and 1.3% in July.  Over the course of the past year such orders have risen 8.1%.  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 was unchanged in October after having risen 0.2% in September.  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 2017.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  5.5% in 2017 and 4.9% in 2018.

Stephen Slifer


Charleston, SC

Industrial Production

November 16, 2017

Industrial production jumped 0.9% in October after having risen 0.4% in September and  having declined 0.5% in August.  However, hurricanes Harvey and Irma biased downwards the results for August and September, and Hurricane Nate reduced oil and gas drilling activity in October.  The Fed estimates that in the absence of the three hurricanes IP would have risen 0.2% in August (versus a published 0.5% decline), risen 0.6% in September (versus a published 0.4% increase), and risen 0.3% in October (versus a published 0.9% increase).  Thus, production continues to climb steadily.  During the past year industrial production has risen 2.9%.  With rebuilding following Hurricanes Matthew and Irma just getting underway robust gains in production should be expected through the spring of next year.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) jumped 1.3% in October after  having risen 0.4% in September after having declined 0.2% in August. During the past year  factory output has risen 2.5% (red line, right scale).  That is its largest 12-month increase since July 2014.

The manufacturing category has been dragged down by recent cuts in the production of motor vehicles.  However, car and truck sales surged in September and 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 1.0% in October after having risen 1.7% in September and 3.5% in August,  but it has still declined 1.6% during the past year.  Industrial production ex motor vehicles has risen 3.2% 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 declined 1.3% in October after having risen  1.5% in September   Over the past year mining output has risen 6.4%.  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 and 1.9% in October as Hurricanes Harvey and Nate took their toll.   This category will rebound in the months ahead.  Over the course of the past year oil and gas well drilling has risen 61.1%.  The number of  oil rigs in operation continues to climb.

Utilities output  climbed by 2.0% in October after having declined 1.0% in September and 1.3% in August.  The August and September drops seem to reflect the inability of utility companies to keep the lights on during hurricane season  During the past year utility output has risen 0.9%.

Production of high tech equipment rose 1.1% in both September and October.  Over the past year high tech has risen 4.1%.   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 rose 0.9% in October to 76.4%.  It is still slightly below the 77.5% that is generally regarded as effective peak capacity.

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