Industrial Production Improves in September
Industrial production figures surprised Wall Street this morning. Despite aggreate hours falling half a percentage in September, production managed to climb 0.7%, far above +0.2% expectations and marking the third straight monthly gain. Upward revisions also pushed the August headline up four-tenths to +1.2%.
Three consecutive gains put the quarterly advance at a +5.2% annual rate, not a bad pace after five straight quarterly contractions.
“Thanks to the cash-for-clunkers program, replenishing inventories, and exports, U.S. factories are getting back into business,” said Jennifer Lee, economist at BMO.
Manufacturing production rose 0.9% September, versus +1.2% in August, but utility production fell -0.7%.
Carl Riccadonna, economist at Deutsche Bank, noted “the ongoing rebound in motor vehicle production was an important driver of the pickup in manufacturing.” That component rose 8.1% in September after a 6.1% gain in August. The gains were not solely auto-related though; the ex-autos figure rose 0.5% in September and 0.9% in August.
Another surprise was the capacity utilization rate, a measure of economic slack. It got lifted from 69.9 to 70.5 in September, breaking a six-month rut below the 70 threshold. The all-time low of 68.3 was registered in June.
With the rate still below the multi-decade average of more than 80%, analysts said the report suggests inflation remains a distant worry.
“In a normal economic cycle, reducing slack might be enough on its own to justify rate hikes,” added Erik Lascelles, senior strategist at TD Securities. “However, there is so much slack that the Fed will surely wish to see a goodly portion of the slack be drawn taught before even considering the possibility.”
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