In the third poor economic report today, we learned industrial production declined 0.4% vs. an Econoday Consensus of -0.2%.
Diving into the Industrial Production and Capacity Utilization – G.17 Federal Reserve Report we also learned July was revised from +0.7 to +0.6 and manufacturing from +0.5 to +0.4%.
The standout pair of numbers is industrial production at -0.4% vs. motor vehicle production at +0.5%.
Highlights
There was some life in the factory sector during July but it proved brief, at least for production. Held down by a 0.4 percent decline in the manufacturing component, industrial production also fell 0.4 percent in data for August. But motor vehicles continue to be a plus in the report, rising 0.5 percent and offsetting a 0.5 percent decline in hi-tech production.
And mining is an increasing plus in the report, emerging from deep weakness with a second straight gain and a solid one at plus 1.0 percent. Utility production, which had up in prior months, fell back 1.4 percent in August. Total capacity utilization edged 4 tenths lower to 75.5 percent.
This report isn’t as weak as the headline readings suggest but, given weakness in other data including this morning’s Philly Fed and Empire State reports, won’t build much confidence that the factory sector will contribute much to the nation’s third-quarter growth.
Recent History
Industrial production showed solid life in both June and July with respective gains of 0.4 and 0.7 percent and including gains for manufacturing production of 0.3 and 0.5 percent. The latter included strong gains for vehicle production and hi-tech production along with promising gains for business equipment. Broad strength in the July durable goods report should support further improvement. Apart from manufacturing, utility output has been strong with mining beginning to trend higher. Capacity utilization, at 75.9 percent in July, has also been on the rise.
Collision Course With Reality
As is typically the case, the Econoday robot put a positive spin on this with a quip “This report isn’t as weak as the headline readings suggest.”
Say what? How could it be worse? Motor vehicles sales are sinking while production is up. And despite a huge increase in motor vehicle sales factory production sank big.
Where’s the strength?
Total Vehicle Sales Units
Total Vehicle Sales Percent Change From Year Ago
Domestic and Foreign Autos Units
Domestic and Foreign Autos Percent Change From Year Ago
Light Trucks Units
Ford Announces Sales Plateau
On September 1, I reported Ford Announces “Sales Plateau” After 8% Decline, Missing Estimates; Diving Further Into the ISM “Anomaly”.
Diving Further Into the ISM “Anomaly”
Earlier today I noted ISM Dips Into Negative Territory; It’s “An Anomaly, Just a Pause”.
Today, I am pleased to report that Pater and I launched a new service, free of charge of course: It’s called “Anomaly Spotters Anonymous”.
We are both expecting more “anomalies”. Stay tuned.
“Anomaly Spotters Anonymous” Spots More Anomalies
Today our vigilant spotters did indeed spot more “anomalies”.
- Retail Sales Unexpectedly Dip 0.3% – Weakness Not Contained to Autos
- PPI Synopsis: Final Demand for Goods -0.4%, Food Prices Down, Obamacare Up
Production of autos rising vs. declines in sales is the biggest anomaly we have spotted since the announcement.
I expect this anomaly to resolve in falling prices as well as lower production in the months ahead.
Stay tuned. We are confident this anomaly will be superseded by even bigger anomalies in the coming weeks.
Mike “Mish” Shedlock
And to think … in a mere few weeks … millions of households will be getting their 2017 health insurance premium (increase) notices … if you keep your windows open, you might hear a collective “oh, sh!t” …
When you pass by a new car lot and the vehicles are so channel stuffed that they cover all the grass and interior roads, you know that the dealers are about to play Russian Roulette with each other.
@AP
The manufacturers have channel stuffed for years now. The big difference is dealers do not have to pay for them like they did in the past. Dealers were preparing a class action suit and the big three backed off and now they pay as they sell them. The bonus on top for selling the vehicles or quotas have changed as well.
Not sure about foreign vehicles, but I am sure they followed suit.
Democratize NIRP now!!!!
People can just take out car loans for a living!
Woo Hoo!!!!!
Year / Year % change #’s are meaningless, noisy, caca….at least to the well0informaed analyst.
Time is better spent on units sold and average price per unit.
If you want to then dive into a sector analysis (e.g. large, small, truck, etc) at that point….have at it. But that’s only really worth it if you work in the planning dept of a car company or shill for Wall St as an analcyst.
God damn it I wish this thingy would allow comment editing
“As you can see I can edit your comment. The problem is they put comment editing at the very highest level. If I gave it to you, you could delete my entire blog.”
I asked for a 1 step up from nothing that allowed people to edit their own comments for 10 minutes. It cannot be difficult but it is very low in priority.
Mish
It’s in the WordPress queue but low priority
Ah….I get it now….no worries.
Car production up and sales down – No problem… Park them in empty mall parking lots and make it look like business is booming.
Well, maybe the Fed can buy up the excess inventory….you know like debt and stocks.
Mad
They already did buy GM. The Fed got its loans back with interest of 6%. The federal government wrote off 28 Billion dollars of the invested taxpayer money. No wonder GM is making profits.
Even besides that most new cars suck and will be impossible to maintain, killing the used car market as well, this gap is to be expected.
Let’s face it, the new generations are hunkering down.
Rich daddies can bestow, but there is nothing for rest to strive for.
after driving for the last 55 years, I think I can say that cars have never been better engineered. Sure, they are god awful expensive to repair, but compared to cars of the past that required plenty of work to keep them on the road, cars of the last decade seem to run for a long time with no work. One of my employees drives a toyota with 250k miles with very little repairs. Almost everyone drives cars well over 100k and I know of plenty that double that. Cars from the 80’s were horrible. You have to go back to the sixties to find a car low tech enough to be able to wrench on yourself with much success. It’s just when new cars go bad, they go really bad.
I am glad that I have driven nothing but old junks all my life.
Even now, I know how to keep them running.
THIS IS THE FUTURE.
You’re supposed to call them “classics”.
The continued expansion of auto production in the face of declining sales has been the most frustrating thing to me over the last 2 years.
If it wasn’t for the idiot automakers continuing to produce vehicles that they have no chance of ever selling, we would be back in recession already and Trump would have this election wrapped up.
Otis the manufacturers do not give a crap. You see the sale of an auto is counted at the time the manufacturer delivers to a dealer. Thus the term channel stuffing was born. Selling them to people is the dealers problem.
But why do the dealers keep buying them when they don’t even have enough room for the unsold inventory that they are already sitting on?
because they are TOLD to. and the manuf. gives them incentives to take delivery.
Otis,
Auto dealers are floor planned by the company they are franchised with. Dealers do not have a real choice in the matter. Sure a dealer may ask to buy say more pick ups in a rural area and they pay for those upon delivery if the manufacturer send them, but all dealers are floor planned by GM, Ford, and the other manufacturers. They do not have a choice.
I’m not holding my breath for big price drops. Seems like I’ve read the same thing about too much inventory on the horizon many times over the past few years, but the prices never seem to drop much. They raise the invoice price and then give rebates to make it look like a good deal.