The U.S. Commerce Department issued some very upbeat data on the manufacturing sector this morning, when that government agency intoned that industrial production had jumped by 1.1% last month. That was more than five times the consensus estimate, which had called for an increase of just 0.2%.
According to Commerce, “the gain in November is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy.” Widespread damages and power outages in the Northeast had caused industrial production to fall by 0.7% in October. Initially, the estimated downturn for that month had been reported as a less-ominous 0.4%.
Taken as a whole, industrial production, which includes manufacturing, mining, construction, and utilities output, increased by 2.5% from a year earlier. Manufacturing has been a reasonably decent performer during the lengthening expansion, although in recent months, there has been some slippage here, most notably in the Institute for Supply Management's survey issued on the first business day of each month. That metric, released almost two weeks ago, noted that such activity had contracted in November. So the industrial production number issued this morning was certainly reassuring.
A big part of the latest improvement in industrial output came from the auto sector, where production jumped by 3.4%. That was this category's first increase in five months. If we back autos out of the mix, the production increase last month was 0.9%. Other contributors to the better industrial showing in November were construction, utilities, and mining.
At the same time, the other part of the report, which chronicles the level of usage at the nation's factories, also showed greater strength in November. Specifically, capacity utilization rose from an estimated 77.7% in October to 78.4% last month. Expectations here had been for a flat reading versus the originally estimated October result of 77.8%. Taken as a whole, this was a clearly upbeat report, and one that was materially better than expected on both the production end and in the area of factory use. The report also suggested that some dour GDP growth forecasts that are now at less than 1% for the current quarter may be too pessimistic. Our current thinking is that GDP will gain a modest 1.0%-2.5% in the period, held in check by both the aforementioned Hurricane Sandy and a likely reduction in inventories.
At the time of this writing, the author did not have positions in any of the stocks mentioned.