Saturday, 21 of October of 2017

Economics. Explained.  

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

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