The last piece has fallen into place. The manufacturing component of the industrial production has not been confirming the enormous strength of regional and private surveys nor recent acceleration in factory orders data, that is not until October's 1.3 percent surge and a 3 tenths upward revision to September which is now at 0.4 percent. Manufacturing makes up the vast bulk of the industrial production report where October's headline gain is a higher-than-expected 0.9 percent with capacity utilization up 6 tenths to 77.0 percent.
Motor vehicles are a major positive for manufacturing production, putting together a string of sharp gains including a 1.0 percent October increase. And recent gains in auto sales, in part tied to hurricane-replacement demand, point to continued strength. Selected hi-tech is another center of strength, also showing a string of gains including 1.1 percent in the latest month.
The report's mining component has been uneven in recent months, down 1.3 percent in October, but the year-on-year gain is still formidable at 6.4 percent. Utilities have also been uneven, bouncing 2.0 percent higher and helping to offset the step back for mining. Year-on-year, utility production is up a modest 0.9 percent.
The yearly gain for manufacturing is still moderate at 2.5 percent but all the indications from the factory sector are pointing to acceleration going into year end, an upward pivot that should give a special boost to fourth-quarter GDP.
Manufacturing production has not returned to pre-recession levels, but overall industrial production just managed to accomplish that feat. Manufacturing is the largest component of industrial production, accounting for about 76.46% of the total as the following chart shows.
Manufacturing Percent of Industrial Production
Happy Days Are Here Again?
Not so fast. This is what the Fed had to say, emphasis mine:
"Industrial production rose 0.9 percent in October, and manufacturing increased 1.3 percent. The index for utilities rose 2.0 percent, but mining output fell 1.3 percent, as Hurricane Nate caused a sharp but short-lived decline in oil and gas drilling and extraction. Even so, industrial activity was boosted in October by a return to normal operations after Hurricanes Harvey and Irma suppressed production in August and September. Excluding the effects of the hurricanes, the index for total output advanced about 0.3 percent in October, and the index for manufacturing advanced about 0.2 percent."
"With modest upward revisions for July through September, industrial production is now estimated to have only edged down 0.3 percent at an annual rate in the third quarter; the previously published estimate showed a decrease of 1.5 percent."
This report may well boost GDP effects for the 4th quarter. We find out tomorrow.
However, if the bounce is indeed hurricane-related as appears obvious, there will be a payback in 2018. The Econoday proclaimed "last piece" is a hurricane-related illusion.
Mike "Mish" Shedlock