- INDICATOR: September Industrial Production and New York Fed Survey
- KEY DATA: IP: +0.1%; Manufacturing: +0.2%/ NY Fed: -4.8 points
- IN A NUTSHELL: “Manufacturing remains soft but there might be some signs that the bottom is being reached.”
WHAT IT MEANS: It is hard to have a full-blown, strong economic expansion if the manufacturing sector is hurting and that has been the case this year. It cannot be said that conditions are good, but they may not be deteriorating any more. Industrial production rose modestly in September after a sharp decline in August. Manufacturing output was up a little faster, but a major drop in aerospace restrained activity. Boeing still has a huge backlog, so that is not likely to continue. More worrisome was continued weakness in machinery. That may indicate uncertainty on the part of businesses about the future direction of the economy and an unwillingness to make any major bets. Overall activity was restrained by declining utility production. It’s tough to seasonally adjust for the weather when there is climate change. (No, I don’t think it is a hoax perpetrated by the Chinese.) But the most optimistic number in the report was the robust gain in petroleum production. Output is now actually up over the year.
While there may be some hints at conditions improving in the Industrial Production release, conditions in the New York Fed’s regional manufacturing sector faltered further. Orders are still declining, but less so. However, optimism about the future is improving. This part of the country is not a hot bed of industrial activity, but a decline there is another indication that manufacturing has a way to go before it can start adding greatly to the economy.
MARKETS AND FED POLICY IMPLICATIONS: While manufacturing has been soft, that doesn’t mean the domestic economy is falling apart. Remember, we are in a global economy and world growth and the value of the dollar matter. Those factors have been working against the sector. In addition, the collapse of the oil complex has hurt firms that provide goods, much of them manufactured, to the energy companies. But as Nobel Laureate Bob Dylan wrote: The times, they are a changin’. Energy prices are no longer sinking like a stone and firms are starting to swim again (apologies to those who know the lyrics). Indeed, rig counts are rising consistently and are up sharply from the bottom reached in the spring.
We might even see some investment in the industry in 2017. That would be a great turnaround that could help the manufacturing sector. But that remains a hope, not a reality. For the markets, though, today’s reports probably will not have much of an impact. We are in earnings season. But for the Fed, which produces the industrial production data, the recent data provide a little for everyone. The production rise was modest enough so those that want to wait can say economic conditions are still not great. Meanwhile, those who want to hike rates can say the worst looks to be over, especially with the dollar off its highs and reasonably stable. Which means, we are still nowhere when it comes to having data that demands a Fed rate hike. Of course, that is only a concern to those who actually think the Fed is data driven.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.
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