October 16, 2020 | 09:41
U.S. Industrial Production Hits The Brakes
This Friday morning has been full of surprises! American consumers continued to defy expectations, hitting the stores, dealerships and restaurants for takeaway in September. But factories were more quiet, more subdued in the month. U.S. industrial production unexpectedly fell 0.6% in September, as output of consumer goods, business equipment and nonindustrial supplies suffered a setback following some solid gains in the prior months. There were upward revisions to July and August but the September drop leaves the index back to June levels. We can't blame utilities.... the sector was down a sharp 5.6% (second decline in a row), as was suggested by the drop work hours. Manufacturing, which accounts for 3/4 of total industrial production, also took a step back (-0.3%) but this was entirely due to autos. Motor vehicle and parts production slumped 4.0%, which is odd considering that auto assemblies were strong. Excluding autos, manufacturing was flat. Mining was the only major category to keep busy, with output up 1.7% in the month, but down a steep 14.8% below a year ago. And for anyone concerned about pricing pressures, well, don't be. The capacity utilization rate fell 0.5 ppts to a 3-month low of 71.5%.
The Bottom Line: Despite the setback, it was a strong quarter for broader production... up 8.7% after a terrible first half. The familiar shape is still intact, although it drooped a little in September. See chart below. But the weak handoff to Q4, along with the rising rate of infections as the fall began, points to slower growth.