Implications: Today's data on industrial production were mediocre, but don't expect that to last. Production dipped 0.2% in November, but was up 0.1% including revisions to prior months, matching consensus expectations. The primary reason for the decline in November was the auto sector, which is volatile from month to month and where output fell 3.5%. In addition, high-tech production continued its recent swoon. This is due to major flooding in Thailand, one of the world's leading producers of hard disk drives and semiconductors. Still, even excluding autos and high-tech, manufacturing production was down 0.1% in November. However, we would not read much into that small decline. During periods of economic expansion, this figure goes down about four months every year and we expect a rebound in overall production in the months ahead. Auto inventories are very thin and problems in Thailand will recede. Timely news on the manufacturing sector already shows a rebound in December. The Empire State index, a measure of activity in New York, increased to +9.5 from +0.6 in November. The Philly Fed index, a measure of activity in that region, increased to +10.3 from +3.6. Both indices easily beat consensus expectations. Corporate profits and cash on the balance sheets of non-financial companies are both at record highs. Meanwhile, capacity utilization is close to long-term norms. As a result, business investment in equipment, which is already at a record high, is likely to continue to trend upward in the year ahead, regardless of whether the federal government maintains full expensing for tax purposes in 2012.
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Posted on Thursday, December 15, 2011 @ 1:22 PM
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