November 16, 2018 Reading Time: 2 minutes

Industrial production increased 0.1 percent in October, following a 0.2 percent gain in September. Over the past year, industrial production is up 4.1 percent. Despite the increase, capacity utilization fell 0.1 percentage points to 78.4 percent as capacity posted a 0.2 percent gain for the month.

The gain in industrial production was driven by the manufacturing sector, which accounts for about 75 percent of total industrial production. Manufacturing output rose 0.3 percent for the latest month, the fifth monthly gain in a row (see chart). Over the past five months, manufacturing output has risen at an annualized rate of 5.0 percent, the third-fastest pace over the last seven years (see chart).

Within manufacturing, durable-goods production rose 0.5 percent while nondurable-goods production edged up by 0.2 percent. Leading the durable-goods production were primary metals (up 3.0 percent), nonmetallic mineral products (up 1.9 percent), aerospace products (up 1.7 percent), and furniture and miscellaneous, both up 1.6 percent for the month. Motor vehicle production posted a 2.8 percent decrease to make it the worst performer within durable-goods manufacturing. Among nondurable-goods producers, chemicals products and food products, the two largest segments, rose 0.3 percent and 0.5 percent, respectively. Apparel and leather-goods production declined the most with a 1.9 percent drop while printing fell 1.2 percent and petroleum and coal products decreased 1.1 percent.

Measured by market segment, consumer-goods production (about 28 percent of total production) rose 0.2 percent in October, with consumer durables off 1.0 percent and consumer nondurables up 0.5 percent. Business equipment (about 10 percent of production) rose 0.8 percent in October and is up 4.1 percent from a year ago. The monthly gain was boosted by a 1.7 percent gain in industrial equipment. Every category within business-equipment production shows a 12-month gain between 3.0 percent and 4.6 percent — very solid performance. Construction supplies increased 0.6 percent for the month and is up 2.9 percent over the past year, suggesting a positive outlook.

Material production (about 46 percent of output) fell 0.1 percent for the month but is up 6.1 percent from a year ago. The energy component has been a major source of volatility in this category, particularly following the collapse of energy prices in mid-2014. The non-energy component rose 0.2 percent for the month and is up 3.4 percent from a year ago.

Today’s report from the Federal Reserve provides additional evidence of the continuing rebound in the manufacturing sector. Along with a very robust labor market, high levels of consumer and business confidence, generally solid balance sheets for the private sector, and strong readings from the AIER Leading Indicators index, the outlook for continued economic expansion remains favorable. The major risks are primarily associated with economic policy (monetary, fiscal, and trade) and global economic uncertainty.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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