Disappointing Industrial Production And Manufacturing

Disappointing Industrial Production Report

August industrial production report was bad because of weakness in autos, mining (because of the hurricane), and utilities production. Manufacturing output is still 6.7% below pre-COVID-19 levels and 93% of sectors are still contracting. Industrial production is 7.3% below pre-COVID-19 output. The good news is July’s readings were revised higher. 

Monthly industrial production growth in July was revised up 0.5% to 3.5%. We had the 4th straight month of growth as August was up 0.4% monthly which missed estimates for 1.2% growth. Manufacturing output growth in July was also pushed up 0.5% to 3.9%. Monthly growth in August was 1% which missed estimates for 1.9%. The capacity to utilization was up from 71.1% to 71.4%. Obviously, there is still plenty of capacity.

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Yearly industrial production growth actually fell from -7.4% to -7.7% which ended the 3-month streak of higher yearly growth. That comp was 0.1% easier. Yearly manufacturing growth improved for the 4th straight month from -6.9% to -6.6%. And the comp was 0.2% harder. 

Utilities production was down 0.4% monthly and mining production was down 2.5%. The energy sector is being gutted as the low price of oil and the lack of access to credit is killing these firms. EOG stock is down 17.1% in the past month and ExxonMobil is down 15%.

Amazingly, ExxonMobil is down 11 days in a row. Investors haven’t seen anything like this. Generally, stocks don’t go down every day even if the business is doing poorly. The energy sector is just 2.19% of the S&P 500. That compares to tech which is 27.83% even though some of the big tech firms are in other sectors. 

Amazon is about half of the consumer discretionary sector and it’s 11.4% of the index. Communication services, which includes Facebook and Alphabet, is another 11.02% of the index. A recent rally in materials has only gotten it to a 2.7% share.

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