Industrial Production Hits High End Of Consensus

Showing broad strength in August, strength that will ease concerns at the Federal Reserve over weakness in manufacturing, industrial production hit the very top of Econoday's consensus range with a 0.6 percent gain and the strongest showing of the year. Manufacturing production exceeded Econoday's consensus range, at a 0.5 percent monthly rise and third gain in four months. This reading opened the year with four straight declines, three of which were very sharp including a 0.9 percent plunge in April.

Before turning back to manufacturing, the report's other two major components also showed strength led by a 1.4 percent monthly jump in mining and a 0.6 percent rise for utilities. The rise in mining is of special note as this sector, after sharp acceleration in both 2017 and 2018, has had a flat year, notwithstanding August's improvement. The rise underway right now in oil prices following the attack on Saudi production points to another month of mining strength in this report for next month.

But manufacturing, facing a slowing export market, is the concern for the Fed right now and August's results, though only one month's results, are very positive. Production of business equipment rose 1.0 percent in the month which should ease specific concerns at the Fed that slowing in global demand is cutting into business investment. Business supplies showed a sharp gain in August as did construction supplies. Other readings show gains for machinery, primary metals and fabrications (all part of the capital goods group) as well as gains for aerospace. Production of motor vehicles slowed in the month.

This report isn't a game changer but it is an eye opener, one that may well cool the Fed's enthusiasm for rate cuts, at least an outsized 50-basis-point cut. Watch tomorrow for the FOMC decision where expectations are firmly set for a 25-basis-point cut and the promise of at least one more such cut before year end.