Industrial Production Declined 0.6% in September


Implications:  After rising for four months in a row, it looks like the recovery in industrial production hit a temporary snag in September, falling 0.6%.  That said, if you include upward revisions to prior months, industrial production actually eked out a gain of 0.1%. Industrial production has now made up roughly 57% of the decline in activity seen during the height of COVID-19 lockdowns back in March and April, but still has a still has a way to go.  We expect a reacceleration in the factory-sector recovery in the months ahead, and here is why. This morning's report on retail sales showed consumer spending up 4.2% from its February pre-pandemic level, and personal consumption spending on goods is up 5.6% from February to August. The pandemic has clearly shifted consumer preferences from services towards goods, and that represents a strong source of demand for US factory output going forward. Overall, even with September's weakness the rebound in Q3 was strong, with industrial production surging at a 39.9% annualized rate versus the Q2 average. Looking at the details, the biggest source of weakness in September came from the volatile auto production sector, which fell 4.0% in September.  However, some slowdown in this series was expected as it has already posted a full recovery from its April low.  Meanwhile, non-auto manufacturing remained unchanged in September and is has still only gained back roughly 57% of the decline in March and April. Another big headwind in September was utilities output, which fell 5.6% as cooler than expected weather reduced air conditioner use.  The one bright spot in today's report was mining, which rose 1.7% and is now up 23.9% from its low in May, signaling the worst is probably over for the beleaguered energy sector.  In other recent factory-related news, the Philly Fed Index, a measure of East Coast factory sentiment, surged to +32.3 in October from +15.0 in September. Meanwhile, its counterpart from New York, the Empire State Index, fell to a still solid +10.5 in October from +17.0 in September. Both these readings signal ongoing recoveries and stand in stark contrast to the deeply negative readings early on in the pandemic.

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Posted on Friday, October 16, 2020 @ 12:53 PM

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.