Implications: More plow horse like numbers on the economy today. Industrial production rose 0.4% in September, but this is nothing to write home about. Including downward revisions to prior months output rose a tepid 0.2%. Output at utilities and mines, which are volatile from month to month, rose 1.5% and 0.9%, respectively. Auto production, which is also very volatile, fell 2.5%, and is down at an 18.7% annual rate over the past three months. Manufacturing outside the auto sector – what we like to follow to reduce "statistical noise" – rose 0.3%. We believe production growth has been slowing lately due to uncertainty about future policy. High tech production was revised lower over the past few months. As a result, it now looks like business investment in equipment and software was down in the third quarter. This is something that usually only happens during recessions. We doubt we are in a recession; instead, business investment is likely down temporarily due to election uncertainty. Once the election is over, no matter who wins, we should have more certainty and, hopefully better policies on the way. Despite this, manufacturing remains up 3.6% from a year ago, including a booming 13.3% in the auto sector and a respectable 2.4% ex-autos. Given relatively low inventories in the auto sector, we expect overall production to bounce back soon. Capacity utilization rose to 78.3%, and still remains higher than the 20 year average of 77.7%. This means companies have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments.
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Posted on Tuesday, October 16, 2012 @ 10:06 AM
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