Manufacturing Production Unexpectedly Fizzles: No Hurricane Bounce

Industrial production in September rose 0.3% vs an expected gain of 0.2%, but the strength dies there. Economists expected a rebound of 0.4% in manufacturing, led by autos, but the gain was an anemic 0.1%.

What happened: Most industries boosted output in September, led by construction and utilities. Manufacturing production edged up 0.1%.

The most notable decline was in chemicals, an industry concentrated in the South. A pair of major storms that swept through the region from Texas to Florida held down U.S. production by about 0.25 percentage points, the Federal Reserve said.

Industrial production fell at a 1.5% annual rate in the third quarter, but the Fed said its index would have risen at least 0.5% if not for the hurricanes.

Really?

IP was down 1.5% annually because of a hurricane impact of 0.25%? Otherwise IP would have been up at least 0.5%? Something has to be misquoted here because that makes no mathematical sense.

No Manufacturing Life

The Econoday consensus was a bit pessimistic on the overall number but way high for manufacturing.

The factory sector isn't showing much life based on the Federal Reserve's industrial production report where the manufacturing component managed only a 0.1 percent increase in September which is 3 tenths below Econoday's consensus and only the 2nd gain in 5 months. August manufacturing is revised 1 tenth higher to minus 0.2 percent but July, a month free of hurricane effects, is revised sharply downward from unchanged to minus 0.4 percent.

The report's 2 other components bounced back into positive ground in September, up 0.4 percent for mining and up 1.5 percent for utilities. Mining volumes have been very strong this year with this component up 9.8 percent from a year ago while utility output, in contrast, is down 4.1 percent.

Turning back to manufacturing, production is up only 1.0 percent year-on-year, pulled down by a 3.2 percent yearly decline for motor vehicles & parts which, like the manufacturing headline, managed only a 0.1 percent gain on the month. Excluding vehicles, manufacturing still sits with only a 0.1 percent monthly gain. The report's selected hi-tech component is September's highlight, up 1.7 percent on the month for a 2.3 percent yearly gain.

But there are not a lot highlights in today's report as the weakness in manufacturing, given this year's enormous strength in private reports like Empire State and ISM, remains an unfortunate surprise. One plus is that hurricane effects, though visible in August's mining and utility output, proved limited. Overall capacity utilization in September came in at 76.0 percent which is 2 tenths below the consensus.

Industrial Production and Capacity Utilization

The above chart from the Fed's Industrial Production and Capacity Utilization report. The Fed has a Q&A on Hurricane Impacts and other technical issues, but it shed little light on anything.

Regional Report Nonsense

The Empire State Manufacturing Survey, a diffusion index, came in at a blistering 30.2 yesterday. Econoday offered this comment, emphasis mine:

"Today's results point to similar strength for Thursday's Philly Fed report which, like this one, has been posting unusually strong results all year. It's important to remember that diffusion indexes offer only rough assessments of activity and in Empire State and Philly Fed are based on relatively small samples where responses are always voluntary. And the rare strength of these samples has yet to be matched by the government's factory data."

Something is seriously wrong with nearly every regional Fed manufacturing report compared to actual production.

I stopped following the regional reports long ago because they do not remotely match anything in the real world.

Mike "Mish" Shedlock

here we go again... "unexpectedly"? by whom? Such words are PURE SPIN.

They are not pure spin. Unexpected is in relation to what a group of economists polled by Bloomberg predicted would happen.

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