Industrial Production Increased 0.4% in July

Implications: A very strong report out of the industrial sector today, led by a surge by automakers. Overall, industrial production rose a healthy 0.4% in July, coming in slightly above consensus expectations and growing at the fastest pace in five months. However, the overall 0.4% gain was held down by a steep 3.5% drop in utility output, due to a relatively mild July. Taking out utilities and mining gives us manufacturing, which boomed 1.1% in July. Autos led the way, increasing 10.1%, the largest monthly gain since July 2009, back during cash-for-clunkers. But even outside the auto sector, manufacturing grew a solid 0.4%. We expect continued robust 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 8.3% from a year ago and up at a 17.3% annual rate in the past three months, signaling companies' willingness to upgrade aging equipment from prior years. Capacity utilization now stands at 79.2% in July, higher than 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. The bottom line is that today's data, which show declining "slack," will help those at the Federal Reserve who want to raise short-term rates earlier rather than later. In other recent news, new claims for unemployment insurance increased 21,000 last week to 311,000. Continuing claims rose 25,000 to 2.54 million. It's still early, but plugging these figures into our models suggests August payrolls are increasing 205,000 nonfarm and 195,000 in the private sector.

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Posted on Friday, August 15, 2014 @ 11:34 AM

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.