Implications:  Industrial production surprised to the upside in July, easily beating consensus expectations to post the largest monthly gain since January. Looking at the details, the strength in today’s report was broad-based with every major category posting a gain. The manufacturing sector was the biggest positive contributor in July, with activity rising 0.5%, the first gain in three months.  Both auto and non-auto manufacturing posted increases, rising 5.2% and 0.1%, respectively.  Given the trend of consumers shifting their preferences back toward services and away from goods, we don’t expect manufacturing activity to continue to strengthen in future months.  We are still forecasting a recession ahead with the goods sector leading the way.  The utilities sector (which is volatile and largely dependent on weather) was another source of strength in July, posting a gain of 5.4%. The Federal Reserve points out that the increase was driven by higher-than-normal temperatures in July, which pushed up demand for air conditioning.  Finally, output in the mining sector increased 0.5% in July, also the first gain in three months.  A faster pace of oil and gas extraction more than offset declines in the mining of other commodities and the drilling of new wells.  Given that the mining index remains below its pre-pandemic highs, we expect this series to be a lifeline for industrial production in the near term.

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