Industrial Production At High End Of Consensus

The Federal Reserve may ready to cut rates because of weakness in the manufacturing sector but weakness isn't very apparent in June's industrial production data. The manufacturing component hit the top end of Econoday's consensus range with a solid 0.4 percent gain for the best showing so far this year. This offsets the overall headline that came in unchanged but reflected a 3.6 percent output decline at utilities which are always subject to strong weather effects. Mining, the third component in the report, managed a 0.2 percent rise on the month.

But manufacturing is by far the largest component in this report and June's results are almost uniformly strong, led by a 2.9 percent monthly rise for motor vehicle production and a 0.7 percent rise for selected hi-tech. Business equipment production posted a second strong increase at 0.5 percent that follows May's 0.4 percent rise in gains that should ease the Fed's concerns over business investment. Construction supplies are yet another strength, up 0.5 percent and 0.6 percent the last two reports in what are positive signals for construction demand.

The immediate look at manufacturing may not be justifying any rate cuts but the longer term view is still soft, up only 0.4 percent year-on-year. This contrasts with an 8.7 percent yearly rise for mining which continues to lead this report (utility output is down 2.6 percent on the year).

But putting the long term aside and looking just at June, today's results are consistent with the growing string of monthly acceleration: the 224,000 surge in nonfarm payrolls, the 0.3 percent rise in core consumer prices, not to mention this morning's very strong retail sales report that included a 0.7 percent jump in control group sales (an input into GDP). If the Fed is indeed led by incoming data, the reasoning to cut rates is likely to sound convoluted.