Industrial Production Still Reflating

Industrial Production benefited from a hurricane rebound in October 2017, rising 2.9% above October 2016. That is the highest growth rate in nearly three years going back to January 2015. With IP lagging behind the rest of the manufacturing turnaround, this may be the best growth rate the sector will experience. Production overall was still contracting all the way to November 2016, providing the index favorable base comparisons that won’t last past next month.

Industrial output is now again about even with the peak registered three years before in November 2014, and only slightly more than the one seven years before that in November 2007. In other words, had US industry not been interrupted by the “rising dollar” in 2014, as Economists assured the world it would not be, the industrial recovery still would have been far short of recovery in terms of both time and depth.

As it is with now a three year detour downward, the sector is that plus an additional lost three years of output. The gap is, of course, much larger than that given the clear lack of momentum in 2017 (tropical storms aside). In other words, as has become normal, even after suffering another serious economic blow US industry is in no hurry to get back to producing things. It’s never been this way before.

The Fed can’t figure out why there aren’t inflation pressures, so here is Exhibit #2 against the mainstream description for them even what might otherwise be called a good month. Exhibit #1 was the non-existent demand for goods which, unsurprisingly, leads to negligible growth in production. US industry corroborates Chinese industry in that very respect.

Apart from the oil sector which has of late become more volatile (only partially due to storm shutdowns and restarts), there isn’t a lot to carry US industry toward a more complete and compelling cyclical upturn.

Despite a surge in automobile sales in both September and October as replacement vehicles are purchased in Texas and Florida, US-based auto production continues to be earnestly constrained. The BEA estimates that Total Vehicle sales were above 18 million (SAAR) again in October, down only a little from the 18.9 million rate in September, far better than the downward trend toward 16.5 million that was in effect up until Harvey’s entrance.