Saturday, 19 of August of 2017

Economics. Explained.  

Category » Industrial Production

Industrial Production

August 17, 2017

Industrial production rose 0.2% in July after having risen 0.4% in June.  Over the past year this series has risen 2.2% and is clearly on the upswing.  The year-over-year increase in the largest since January 2015 — 2-1/2 years ago.  The monthly gains sometimes seem disappointing, but the reality is that production is gradually picking up but the quickening, thus far, has been largely associated with oil well drilling.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) declined 0.1% in July after having risen 0.2% in June. During the past year  factory output has risen 1.2% (red line, right scale).  It has clearly hit bottom.

The manufacturing category has been dragged down by recent cuts in the production of motor vehicles.  Manufacturing production ex motor vehicles has risen 1.7% in the past year.  Thus, factory output has been climbing, but its rate of increase has been curtailed by the recent slowdown in the sales and production of motor vehicles.

Mining (14%) output rose 0.5% in July after having risen 2.0% in June.   Over the past year mining output has risen 10.2%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity  which declined 0.9% in July after having risen 6.8% in June.  The July drop follows gains in each of the previous thirteen months.  Over the course of the past year oil and gas well drilling has risen 100.3%.  The number of  oil rigs in operation continues to climb.

Utilities output  rose 1.6% in July after having declined 1.2% in June.  During the past year utility output has fallen 0.6%.

Production of high tech equipment declined 0.1% in after having fallen 0.4% in June.  Over the past year high tech has risen 3.2%.   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 0.1% in July to 75.4% after having risen 0.1% in June.  It is still below the 77.5% that is generally regarded as effective peak capacity.

Stephen Slifer


Charleston, SC

Durable Goods Orders

July 27, 2017

Durable goods orders jumped 6.5% in June after having declined 0.1% in May  However, the gain was concentrated in the transportation category, non-defense aircraft orders in particular.   As always this is a very volatile series.  Over the course of the past year durables have risen 16.1% but this is very misleading result for June.

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 19.0% in June thanks to a 31.0% increase in non-defense aircraft orders. This means that non-transportation orders rose 0.2% in June after having climbed 0.6% in May.  Over the past year non-transportation orders have risen 6.0%.  This series has been steadily rising for the past year.

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 declined 0.1% in June after having risen 0.7% in May.  Over the course of the past year such orders have risen 5.6% (with the exceptio0n of last month) is the biggest yearly increase since mid-2014.  At long last they certainly seem to be on the rise.

The backlog of orders jumped 1.3% in June after having fallen 0.1% in May but the big gain in June obviously reflects the increase in civilian aircraft orders.  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  5.1% 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