As with retail sales, economists seemed to have forgotten there was a hurricane. Either that or Econoday is doing another brilliant job of blaming general weakness on Harvey.
The biggest hurricane hit yet comes not in consumption but on the production side of the economy as industrial production fell 0.9 percent in August which is within Econoday’s consensus range but against a median call for a 0.1 percent gain. The report’s three components all show declines: utilities down 5.5 percent on forced outages following Harvey; mining down 0.8 percent on lower output of oil and natural gas; and manufacturing down 0.3 percent reflecting declines in machinery and nondurables despite a rise in vehicle production that followed three straight declines.
Capacity utilization reflects August’s weakness, down 8 tenths to 76.1 percent. Revisions are mixed with July revised 2 tenths higher to plus 0.4 percent but June revised 2 tenths lower to plus 0.4 percent. May is revised 1 tenth higher to unchanged.
Hurricane effects are temporary and will be reversed yet they are certain to affect September’s report given extending disruptions from Harvey and Irma’s hit on Florida. The manufacturing component of this report tells a key story right now of the 2017 economy: four straight months of trouble that include two contractions. Regional surveys based on anecdotal responses from small samples, such as this morning’s Empire State report, have not been picking up this weakness.
Fed Estimates Hurricane Impact at 0.75%
The Fed’s Industrial Production and Capacity Utilization report discusses the impact of hurricanes.
Industrial production declined 0.9 percent in August following six consecutive monthly gains. Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point. The index for manufacturing decreased 0.3 percent; storm-related effects appear to have reduced the rate of change in factory output in August about 3/4 percentage point. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins.
The output of mining fell 0.8 percent in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5 percent, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning.
At 104.7 percent of its 2012 average, total industrial production in August was 1.5 percent above its year-earlier level. Capacity utilization for the industrial sector decreased 0.8 percentage point in August to 76.1 percent, a rate that is 3.8 percentage points below its long-run (1972–2016) average.
Dudley Dooright on Hurricanes
This is preliminary but it appears Industrial Production was going to be negative even without the impact of hurricanes.
Not to worry, a confident New York Fed President William Dudley says rate hikes will continue because Hurricane Effect will Provide a Long Run “Economic Benefit”
Also recall my August 14 article NY Fed President Wants Consumers to Tap Home Equity: Didn’t We Try That Before?
Mike “Mish” Shedlock
Medex Man said:
Econoday is HQ’d just outside Philli, home of an absurd soda tax scheme. Maybe these “economists” are so caffine deprived that they don’t know the “beautiful deleveraging” that Ray Dalio talked about resulted in a LOT more debt (aka more leverage, not less).
Obama’s barely stall-speed economic “recovery” was nothing but a giant credit card binge
Tony Bennett said:
NBER looks mainly at 4 things when considering a recession.
Real Personal Income
August month over month
employment … positive
retail sales … negative
industrial production … negative
real personal income … not out yet … but CPI “hot” yesterday.
dshort with the write up
And to think someone here the other day said no sign of a recession.
When a recession (finally) hits it will catch bullz flat footed … as usual.
No Ho said:
Xlent “Dudley Dooright” post. The fed, taken together is, IMO, IYI: intellectual yet idiotic.
People are broke and the morons at the Fed don’t have a clue.
And the unbroken have all the stuff they need.
The Fed knows that people are broke and pension funds are going bust, but the Fed’s shareholders (Rothschilds, Rockefellars, and Morgans) don’t care and are calling the shots…
Question – when it gets really messy, what will they do?
What controls can they use to try to re-juice the system and what will they do with those controls?
Tony Bennett said:
When all you have is a hammer …
I would guess more of the same. Another large stimulus package courtesy of fedgov. Federal Reserve will chip in with NIRP (with current rate so low they’ll have to go negative) + QE.
Medex Man said:
The Fed doesn’t have any “controls”, they never did.
What they used to have (past tense) was credibility. Between Bernanke and Yellen, all Fed credibility is gone. “Open mouth” operations depend on credibility to be effective, and **news flash** the subprime contagion was not, and still is not, well contained.
All the Fed can do is manipulate up stock and bond prices, but as those artificial prices become sufficiently divorced from fundamentals, it takes exponentially more currency printing just to prevent reversion to the mean.
There is nothing this Fed could do to help the economy, other than normalize interest rates and pray to God that whomever is Chair next has more personal credibility.
Ending the Fed’s war against savers won’t fix any problems, but it would set up the board so the next Fed Chair might have a chance.
‘Economists’ are really political commentators with no real world experience in real economics.
To find those with ‘real world experience’ you need to go to China.
This is why China will win in the long run.