Disappointing Industrial Production And Manufacturing

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Is Manufacturing Coming Back?

Some are bullish on the cyclical recovery in the manufacturing sector; they think the August report was a blip. September Empire State Manufacturing report supports my belief as the index was up from 3.7 to 17 which beat the consensus of 6.5 and the highest estimate which was 15. The August report was in concert with the manufacturing reading, as it fell from 17.2 to 3.7 last month. Let’s see if this improvement leads to higher industrial production growth next month.

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New orders index spiked 8.8 points to 7.1. The shipments index was up 7.4 to 14.1. Expectations index was strong as it jumped from 34.3 to 40.3. There is great reason to be optimistic as the global economy is reopening. We are still in the beginning phase of this manufacturing recovery. 

The new orders index was up 1.9 to 39.1. The shipments index was up 8.2 to 39. As you can see from the chart above, the capex index was up 12.7 to 18.7 which is a new recovery high. We’re well within the range seen in the last expansion. This year’s recession was worse than the slowdown in 2016. Technology spending was up 6.4 to 14.4.

Conclusion

We got a lot of weak economic news on Tuesday as monthly manufacturing and industrial output growth missed estimates. Furthermore, RedBook same-store sales growth fell the 2nd week in a row. We are no longer in the back to school shopping season. 

Retailers are now making inventory projections for the holiday shopping season which will be a huge tell as to how the economy is doing. We will likely see another acceleration in growth sometime in Q4 once the COVID-19 tests start going out. 

There should also be a lot of optimism surrounding the potential for vaccines. Some good news on Tuesday was the solid improvement in the September Empire Fed manufacturing index. 

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