October 2019 Industrial Production

Industrial production suffered a second consecutive setback in October 2019 according to the Federal Reserve.  After declining 0.3 percent (upwardly revised from minus 0.4 percent), the measure of America’s physical output dropped 0.8 percent.  Likewise, the year-over-year trend was negative for a second month in a row, declining 1.1 percent.

All three major components declined.  Utilities dropped 2.6 percent after gaining 1.9 percent as a steep decline in demand for electric output offset a marginal uptick in natural gas use.  Mining declined for a second period, but the rate of change improved to minus 0.7 percent from minus 0.8 percent in September; despite the recent weakness, mining is up 2.7 percent from a year ago.  Finally, manufacturing dipped 0.6 percent. 

While it’s rate of change was the slightest of the three categories, manufacturing is the largest segment of the report, so its downturn hurt the total.  Most of manufacturing’s drop was caused by the labor strike at a major automotive maker which is now complete, so it should bounce back in November.  Unfortunately, the category was still negative when auto-related figures are excluded, so there was real economic weakness in October.

Capacity utilization suffered in the period as well.  Firms used just 76.7 percent of their potential, a decline of 0.8 percentage point.  At this rate, capacity utilization is running 3.1 percentage points below the long-run average (1972-2018). 

This was not a good report for the nation’s factory segment.  Output slowed no matter how you look at it.  However, November could end up being a big turnaround month since the strike is complete.  If it doesn’t turn around, it could portend bigger issues are afoot.