#558 – Manufacturing in U.S. Climbs for First Time in Three Months

Finally, a little good news…

Manufacturing in U.S. Climbs for First Time in Three Months
Victoria Stilwell, November 17, 2015 BloombergBusiness

Factory output increased in October for the first time in three months as producers turned out more construction materials and motor vehicles.

The 0.4 percent advance at manufacturers exceeded the median forecast in a Bloomberg survey and followed a 0.1 percent drop in September, figures from the Federal Reserve showed Tuesday. Total industrial production unexpectedly dropped 0.2 percent for a second month as warm weather reduced electricity demand and the oil industry continued to cut back.

U.S. dollar appreciation and soft global growth mean manufacturers have largely depended on domestic consumers to help draw down bloated inventories. Demand for autos and other big-ticket items have been bright spots for factories, and additional evidence of wage growth may help households feel confident enough to boost spending even further.

The figures show “pretty broad strength in manufacturing,” said Sam Coffin, an economist at UBS Securities LLC in New York, who is the top-ranked forecaster of factory output over the past two years, according to data compiled by Bloomberg. “It’s too early to declare the inventory correction over, but it certainly hints there’s less of a drag at the start of Q4 than at the start of Q3.”

Capacity utilization, which measures the amount of a plant that is in use, eased to 77.5 percent last month from 77.7 percent. Factory capacity picked up to 76.4 percent.

Mining production, including oil drilling, dropped 1.5 percent last month after a 2.4 percent decrease in September. Oil and gas-well drilling declined 5 percent after a 4 percent retreat a month earlier.

Americans’ lingering appetite for new cars, amid easy standards for loans, remains a pillar of support for the industry. Cars and light trucks sold at an 18.1 million annualized rate last month, the most since July 2005, according to data from Ward’s Automotive Group.

Output of motor vehicles and parts climbed 0.7 percent in October after rising 0.5 percent a month earlier. Excluding autos and parts, factory production increased 0.4 percent last month, the biggest gain since November 2014.

The figure reflected a 1.7 percent increase in the output of construction supplies. Almost all categories of big-ticket durable goods climbed in October, including appliances, electrical equipment and primary metals. Textile producers also picked up the pace of output.

As we look forward to the new year, we remain optimistic that manufacturing will continue to show positive gains.

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