The biggest hurricane hit yet comes not in consumption but on the production side of the economy as industrial production fell 0.9 percent in August which is within Econoday’s consensus range but against a median call for a 0.1 percent gain. The report’s three components all show declines: utilities down 5.5 percent on forced outages following Harvey; mining down 0.8 percent on lower output of oil and natural gas; and manufacturing down 0.3 percent reflecting declines in machinery and nondurables despite a rise in vehicle production that followed three straight declines.
Capacity utilization reflects August’s weakness, down 8 tenths to 76.1 percent. Revisions are mixed with July revised 2 tenths higher to plus 0.4 percent but June revised 2 tenths lower to plus 0.4 percent. May is revised 1 tenth higher to unchanged.
Hurricane effects are temporary and will be reversed yet they are certain to affect September’s report given extending disruptions from Harvey and Irma’s hit on Florida. The manufacturing component of this report tells a key story right now of the 2017 economy: four straight months of trouble that include two contractions. Regional surveys based on anecdotal responses from small samples, such as this morning’s Empire State report, have not been picking up this weakness.
Fed Estimates Hurricane Impact at 0.75%
The Fed’s Industrial Production and Capacity Utilization report discusses the impact of hurricanes.
Industrial production declined 0.9 percent in August following six consecutive monthly gains. Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point. The index for manufacturing decreased 0.3 percent; storm-related effects appear to have reduced the rate of change in factory output in August about 3/4 percentage point. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins.
The output of mining fell 0.8 percent in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5 percent, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning.
At 104.7 percent of its 2012 average, total industrial production in August was 1.5 percent above its year-earlier level. Capacity utilization for the industrial sector decreased 0.8 percentage point in August to 76.1 percent, a rate that is 3.8 percentage points below its long-run (1972–2016) average.
Dudley Dooright on Hurricanes
This is preliminary but it appears Industrial Production was going to be negative even without the impact of hurricanes.
Not to worry, a confident New York Fed President William Dudley says rate hikes will continue because Hurricane Effect will Provide a Long Run “Economic Benefit”
Also recall my August 14 article NY Fed President Wants Consumers to Tap Home Equity: Didn’t We Try That Before?
Mike “Mish” Shedlock