August’s production decreased by 0.4% (a 0.2% decline was expected), following a 0.6% decrease in July. At 75.5% in August, capacity utilisation was back down to June’s level following a brief spurt upward in July, it still signals little in the way of inflationary pressure.
With regard to production by sector, weakness was relatively broadly based. Production fell the most for utilities, which accounted for the largest decrease (1.4%), though nonindustrial supplies (0.8%), materials (-0.5%), and consumer goods (0.2%) were also weaker. If utilities were excluded, production would have still been 0.4% lower in the month.
August’s weakness in production was a little discouraging given that the weakness was relatively broadly spread across the major sectors. Furthermore, this weakness was also corroborated by the August ISM reading (where the new orders and the production indices plunged from the high 50s to around 49), as well as from the corporate sector, where companies have been downgrading earnings expectations following lighter activity in the month. The culprit is still the ongoing strength in the dollar, weakness in the commodity complex, political uncertainty, still high levels of inventories relative to sales, soft global economic activity, and fears of ongoing economic stagnation. Auto production is starting to decelerate after a very strong period, and it is hoped that the recovery in housing and the slow bottoming-out in the energy-related areas will help provide enough strength to pick up the slack. Bottom line, this month’s report was a little discouraging and shows that we are still dragging along the bottom with few signs of a sustained industrial breakout taking place.
For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.
Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.