Industrial Production Jumps
Industrial production numbers for July, released today, beat the Bloomberg Consensus Estimate of 0.4% by 0.2 percentage points.
However, June industrial production was revised lower by 0.2 percentage points from 0.3% to 0.1%. Moreover, June manufacturing was revised to -0.3% from an initial reading of 0.0%.
A 10.6 percent surge in motor vehicle production gave a very significant lift to industrial production which rose 0.6 percent in July. The manufacturing component, which has been flat all year, jumped 0.8 percent. Excluding vehicles, however, manufacturing rose only 0.1 percent. The lack of strength here is the result of business equipment which edged only 0.1 percent higher after declining 0.2 percent in June.
The rise in production drove capacity utilization up 3 tenths to 78.0 percent which is where it was back in April. Capacity utilization for manufacturing rose 5 tenths to 76.2 percent.
The two non-manufacturing components are mixed. Production at utilities, due to July’s cool weather, fell 1.0 percent with capacity utilization down 8 tenths to 79.1 percent, while mining production rose 0.2 percent with capacity utilization down 1 tenth to 84.4 percent.
Weak foreign demand and weakness in the energy sector may be hurting much of the industrial sector but these factors are not at play in the domestic auto industry. The readings in today’s report are mixed but the headline gain, driven by the convincing strength for autos, is an eye catcher and will certainly be ammunition for the hawks at next month’s FOMC meeting.
Revisions and Seasonal Adjustments in Play
The revisions lower last month followed by the surge this month suggests some significant seasonal adjustments and/or one-time production shifts in play.
Auto Production Strength Cannot Last
Autos remain in the spotlight. But record, or near-record auto sales cannot last forever. Today’s strength will be tomorrow’s weakness.
When auto sales turn for good, the resultant numbers will likely be shockingly bad.
Mike “Mish” Shedlock