Monday, 11 of December of 2017

Economics. Explained.  

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

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