October’s production was unchanged, following a decline of 0.2% in September. At 75.3% in October, capacity utilisation was still quite low following a brief spurt upward in the summer; it signals little in the way of inflationary pressure.
With regard to production by sector, it was a relatively mixed bag. Production rose for construction, mining, materials, and business equipment; though it was lower for utilities and consumer goods production. If utilities were excluded, production would have been 0.4% higher in the month. Excluding energy it would have been 0.3% higher.
While the situation in this sector is still far from stellar, the decline in October was slightly surprising given there was a strong increase in manufacturing hours worked in the month, in addition to a second consecutive very solid monthly increase in the ISM production index (now at 54.6). Taking a slightly wider view, the annual rate of growth in production remains negative, as it has been since August 2015. This continues to be the largest running decline in production, without the economy actually being in recession over the index’s 96-year history. The culprits for this ongoing weakness continue to be the 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, the slow bottoming out in the energy-related areas, and now the potential Trump tax cuts and infrastructure spending will help provide enough strength to pick up the slack. Bottom line, this month’s report was fairly disappointing and there continues to be very little momentum apparent here.
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.