August 2017 Industrial Production

Industrial Production is the latest economic indicator to disappoint.  American output of all physically made goods declined 0.9 percent in August 2017 according to the Federal Reserve.  This setback follows six consecutive months of increases.  The central bank estimates Hurricane Harvey had an impact on the figure, reducing the total by 0.75 percentage point. 

All three major industry groups declined.  Utilities were hit hardest, dropping 5.5 percent as weather interfered with consumption of energy.  Mining output contracted 0.8 percent; within mining, all major categories recorded losses, including oil and gas drilling which declined for a second consecutive month.  Finally, manufacturing (the largest segment of the report) declined 0.3 percent as an increase in the output of durable goods (+0.3 percent) was outweighed by a decline in nondurable goods (-0.9 percent). 

Capacity utilization fell to the lowest level since March of this year.  Our nation used just 76.1 percent of its potential.  This figure continued to be short of its 79.9 percent average from 1972-2016.  Utilities were the hardest hit in this portion of the report as well, so expect some bounce back in the months ahead as power and residents return to the weather-ravaged areas of the country.

Industrial production will probably revert higher to its recent trend as the year comes to a close, but September’s figures are likely to be hurt by weather-related issues in the meantime.  Atlas will keep an eye on the manufacturing segment.  As we mentioned here, automotive output was already struggling, hurting the cyclically sensitive portion of the economy (manufacturing) prior to the storms.  If an economic slowdown (not necessarily a contraction) is developing, the nation’s factories are sure to show continued signs of weakness, thus requiring our close monitoring.