Implications: No doubt about it, industrial production was weak in July. The one positive contribution for the month came from utilities, the result of temperatures returning to normal and boosting demand for air conditioning following the coolest June since 2009. Aside from that series, declines were broad-based. Auto manufacturing fell 0.2% in July following two months of strong gains. Meanwhile, manufacturing outside the auto sector (which represents the majority of activity) declined 0.4%. Putting the two series together shows overall manufacturing fell 0.4% in July and is now down 0.5% from a year ago. This represents a considerable slowdown in the twelve-month growth rate since the end of 2018, and the same pattern can be seen in overall industrial production as the chart above shows. However, it's important to remember that we saw a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. Keep in mind that manufacturing is only responsible for about 11% of GDP and is much more sensitive to global demand than other sectors of the economy. Even though non-auto manufacturing is now down 0.9% in the past year, the various capital goods production indices continue to outperform the broader index. For example, over the past twelve months business equipment is up 1.0%, high-tech equipment is up 5.3%, and durable goods more generally are up 1.1%. By contrast non-durable goods production is down 2.1%, demonstrating that the ongoing weakness in non-auto manufacturing growth isn't being led by the death of business investment Finally, mining activity fell 1.8% in July, its largest monthly drop in over three years. However, according to the Fed this was just the result of a sharp temporary decline in oil extraction due to hurricane Barry. In the past year mining is still up 5.5%, showing the fastest year-over-year growth of any major category. In other recent news from the manufacturing sector, the Philly Fed Index, a measure of East Coast factory sentiment, dropped to +16.8 in August from +21.8 in July. Meanwhile, the Empire State Index, which measures factory sentiment in the New York region, continued its rebound, rising to +4.8 in August from +4.3 in July. Notably, both of these readings beat consensus expectations and signal continued optimism. On the housing front, the NAHB index, which measures homebuilder sentiment, rose to 66 in August from 65 in July, matching its 2019 high. The increase was driven by expectations of stronger sales activity and buyer foot traffic.
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