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Tuesday, November 17, 2015 11:58 AM

Industrial Production Unexpectedly Declines Again: Don't Worry, It's the Weather and Mining

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Econoday labels the unexpected 0.2% decline in Industrial Production deceptive. The consensus estimate was for a 0.1% gain. But subtract out the decline utilities blamed on weather that was "too good" and mining which no one cares about and there is reason to cheer.

In a deceptive headline, industrial production fell 0.2 percent in October but weakness is in utilities and mining. Boosted by construction supplies, manufacturing, which is the core component in this report, rose a very solid and higher-than-expected 0.4 percent to end two prior months of decline.

Construction supplies jumped 1.7 percent in the month in a reminder of how strong construction spending is right now. Motor vehicle production, a center of strength all year for the manufacturing sector, jumped 0.7 percent with the year-on-year rate in the double-digits at plus 10.9 percent. High-tech industries, where production has been flat all year, also rose 0.7 percent in the month. Spending this year on capital goods, held down by weak foreign demand, has also been flat, though production of business equipment did rise a respectable 0.2 percent in the month. Production of consumer goods slipped 0.1 percent though the year-on-year rate is a respectable plus 3.5 percent.

Utility output, reflecting the nation's unseasonably warm weather, was really down October, falling 2.5 percent. Year-on-year output is down 1.5 percent. Mining output, the report's third main component after manufacturing and utilities, fell 1.5 percent. This component, down a year-on-year 6.9 percent, has been getting hit by weak commodity prices.

Turning to capacity readings, total utilization came in at 77.5 percent which is unchanged from September's initial reading but down 2 tenths from September's revised reading. Capacity utilization in the manufacturing sector rose 2 tenths to 76.4 percent.

It's not been easy to find good news out of the manufacturing sector which makes this report a standout of sorts. Gains in production, however, would have to extend through year-end to turnaround what has been a weak, export-hit year for the manufacturing sector.

Recent History Of This Indicator

Industrial production has been on a two-month decline but is expected to edge 0.1 percent higher in October. The manufacturing component, which has contracted in four of the last five reports, is expected to rise 0.3 percent in line with a gain in manufacturing hours. Vehicle production has been showing the most strength in this report, offsetting weakness in business equipment and underscoring that demand right now is domestically based.
An Otherwise Excellent Report

If you throw out consumer spending, utilities, mining, total utilization, downward revisions to total utilization, and pray consumer auto buying holds up, this was an excellent report.

Mike "Mish" Shedlock

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