Implications: As of July, the soft patch in manufacturing had ended. Industrial production surged 0.9% in July, the largest monthly gain this year. The July jump was fueled by a 5.2% expansion in auto production. This monthly increase – at an 83% annualized rate - suggests that the supply-chain disruptions coming from Japan have ended. We expect more increases like this in the next few months. Excluding autos, manufacturing production increased 0.2% in June, and is up 4% versus a year ago. Corporate profits and cash on the balance sheets of non-financial companies are at record highs. Meanwhile, companies can fully expense these purchases for tax purposes through year-end. This suggests business equipment purchases and production should rise as the second half of 2011 unfolds. Today's report also showed that capacity utilization hit its highest level since August 2008, coming in at 77.5. As it did in 2010, the industrial sector has reasserted its leadership of the recovery. The rise in overall, nation-wide production during July suggests that the weakness reported by the Empire State manufacturing index (which fell to -7.7 in August from -3.8 in July) is unlikely to continue. We believe that purchasing managers surveys have become less reliable. They seem to be influenced more by emotion and uncertainty than they have in the past.
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