Industrial Production Disappoints Again; Gaming the Effect on GDP Estimates
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Industrial production rose 0.1% in September vs. a Bloomberg Econoday Consensus of +0.2%. Manufacturing rose 0.2% vs. a consensus of 0.1%.
However, the Fed revised August production and August Manufacturing from -0.4% to -0.5%, effectively negating the meager rise in total production.
Flat is the best word to describe the factory sector right now. The latest evidence is the industrial production report which inched up only 0.1 percent in September with August revised 1 tenth lower to minus 0.5 percent. These two months follow, however, solid 0.5 percent gains in June and July which, when averaged all altogether however, extend what has been a flat two years for the industrial economy.
Manufacturing production did rise a nearly respectable 0.2 percent but follows a downwardly revised 0.5 percent decline in the prior month. Motor vehicle production, which was strong during the summer, was flat in September, up 0.1 percent. High-tech production bounced 0.6 percent higher to help drive the overall gain for manufacturing. A negative, however, is a second straight decline in business equipment, down 0.2 percent and 0.5 percent the last two reports.
Mining is a positive in the report, up 0.4 percent though following a 1.0 percent decline in August. Year-on-year, mining production is down 9.4 percent. Utility production is a negative in the September data, down 1.0 percent. Here, the year-on-year decline is only 0.4 percent. Capacity utilization came in at 75.4 percent vs a downwardly revised 75.3 percent in August.
Year-on-year, industrial production is down 1.0 percent with manufacturing dead even at zero percent. The 2014 collapse in oil prices and its hit on demand for energy equipment pulled the factory sector into low single digit contraction, which is where it continues to struggle.
Industrial Production Manufacturing
Industrial Production Total
Industrial Production Total Detail
August 2015 was the last positive year-over-year overall advance in industrial production.
Gaming the Effect on GDP Estimates
The effect on GDPNow and Nowcast estimates is not crystal clear as it depends on what those models predicted.
That said, I will take a stab the the models predicted slightly better. My estimate is this report will take 0.1 percentage points off GDPNow and 0.2 percentage points off the FRBNY Nowcast.
If I am correct, the GDPNow estimate for third quarter will slide to 1.8% and Nowcast to 2.1%.
We will find out on Wednesday for GDPNow and Friday for the FRBNY Nowcast.
Mike "Mish" Shedlock
This article was written by Mike Shedlock for MishTalk on Oct 17, 2016.
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