Implications: After posting its largest gain in a year in July, industrial production took a breather in August, demonstrating the type of "fits and starts" recovery that has become familiar. While the headline number is still down 1.1% from a year ago, it is unchanged from six months ago and up at a 2.7% annual rate in the past three months, an acceleration that signals the sector may be leaving behind the headwinds related to the drop in oil prices in the past couple of years. One of the biggest drags on today's number was non-auto manufacturing, which fell 0.6% in July, its largest drop since 2014. Auto output increased 0.5% in August, and is now up 30.5% at an annual rate in the past three months, hitting a new all-time record high. This helped curb the overall drop in manufacturing and signals strong auto sales in the months to come. Perhaps the best news was that mining production posted its fourth consecutive month of gains, jumping 1% in August, and is now up at a 6.3% annual rate in the past three months. This month's gain was driven by both metal ore mining and petroleum and natural gas extraction. In fact, oil and gas-well drilling jumped 3.2% in August, and is now up at 38.6% annual rate in the past three months. While mining (and energy in general) has been a drag on production over the past year, we expect activity in that sector to grow in the year ahead as energy prices are well off the lows. Based on other commodity prices, oil prices should average at higher levels over the next several years. Although we don't expect overall industrial production to boom any time soon – weak overseas economies will continue to be a headwind – we do expect solid growth in the year ahead. In other recent news, the Empire State index, a measure of manufacturing sentiment in New York, rose to -2.0 in September from -4.2 in August. Meanwhile, the Philly Fed index, a measure of sentiment among East Coast manufacturers, jumped to +12.8 from +2.0. These reports signal we are not headed for a recession and the economy remains a Plow Horse.
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