Source: Wells Fargo Securities, LLC Economics Group
Broad-based Gains Are a Welcome Sign of Improvement
Prior to this morning’s report, orders and production figures had been
broadly disappointing in recent months. A gap between multi-year highs in
survey data, like the ISM manufacturing index, and hard data on output
were confounding efforts to determine which way the winds were blowing
Though our patience was running thin, our conviction that we would
eventually see a modest strengthening in the factory sector was finally
justified in what feels like the first unequivocally positive industrial
production report in months.
Manufacturing output, which comprises three-quarters of all industrial
production, was up 0.6 percent. In terms of the underlying components
within manufacturing, production of automobiles and parts was the biggest
positive, up 3.4 percent in the month. Gains were not limited to the auto
sector, with manufacturing production up 0.5 percent outside of the
sometimes volatile auto category. Gains outside of autos were led by a
3.1 percent increase in wood products output and a 1.7 percent increase in
production at the country’s textile mills.
Mining production, which has a roughly 15 percent share of output,
increased 1.7 percent in November. While that is a healthy gain, it comes on
the heels of a 1.5 percent drop in October. So, to some extent this is just a
reversal of a bad month in October. Utilities production was up 3.9 percent
in November, the largest monthly increase in eight months for this choppy
category of production.
What Does This Mean For the Outlook?
There are a few negatives in this report that could have marginally negative
implications for GDP, but generally the details of today’s report are much
more in-line with the gradually improving outlook we have maintained in
the face of disappointing data in recent months. Production of primary
metals, computer & electronics components, aerospace & miscellaneous
transportation equipment and apparel were all negative. However, the
back-to-back increases in manufacturing output and the upward revision to
last month’s figures offer a more optimistic assessment of the factory
sector. One robin does not make it Spring however, so we will keep a
watchful eye on other leading indicators.
Speaking of which, the New York Federal Reserve’s December Empire
Manufacturing Index hit the wire earlier this morning and showed that
manufacturing in New York and the surrounding area is showing only scant
improvement. The headline measure came in at 0.98, and while there were
a lot of negative components, the expectations for six months from now are