Implications: August's report on industrial production confirms that the Japan-related soft patch in manufacturing is over. Industrial production is up 3.3% in the past year but has accelerated in the past 3 months, up at a 4.4% annual rate. The August rise was fueled by a 1.7% expansion in auto production. Auto production is up at a 23% annual rate over the past three months showing that the supply-chain disruptions coming from Japan have completely ended. We expect more increases like this in the next few months. Excluding autos, manufacturing production increased 0.3% in August, and is up 3.5% versus a year ago. Today's report also showed that capacity utilization hit its highest level since August 2008, coming in at 77.4. As it did in 2010, the industrial sector has reasserted its leadership of the recovery. The rise in overall, nationwide production during August stands in sharp contrast to weak regional manufacturing surveys. The Empire State manufacturing index fell to -8.8 in September from -7.7 in August. The Philly Fed index was down 17.5 in September from -30.7 on August. We believe that purchasing managers surveys have become less reliable. They seem to be influenced more by emotion and uncertainty than they have in the past.
Click here for the full report.