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Brian Wesbury
Chief Economist
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Bob Stein
Deputy Chief Economist
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 | Industrial Production Declined 0.1% in August |
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| Posted Under: Data Watch • Industrial Production - Cap Utilization |
Implications: No, the sky is not falling on the US economy. Although industrial output slipped 0.1% in August, falling short of the 0.3% consensus expected gain, the decline was all due to the highly volatile auto sector. It was the first monthly drop since January and only the second monthly drop in the past year. During economic expansion, it's normal for industrial production to decline two or three times per year, and this is no different. July had the largest monthly gain for automakers since September 2009, and August simply saw a return to the pre-existing trend for that sector. Excluding July, auto production was the highest on record in August and up 8% from a year ago. Outside the auto sector, manufacturing grew 0.1% in August. We expect continued growth in the industrial sector in the year ahead. The housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 7.4% from a year ago and up at a 13.2% annual rate in the past six months, signaling companies' willingness to upgrade aging equipment. Despite a drop in August, capacity utilization still stands at 78.8%, right around the average of 78.9% over the past twenty years. Further gains in production in the year ahead will push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. In other news this morning, the Empire State index, a measure of manufacturing sentiment in New York, soared to 27.5 in September versus 14.7 in August. The index is now the highest in more than four years and signals robust growth ahead for the industrial sector.
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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