Industrial Production Falls In August

A reversal in the auto sector pulled down industrial production in August, falling 0.4 percent vs the Econoday consensus for a 0.2 percent decline. The manufacturing component fell 0.5 percent, also deeper than the consensus at minus 0.3 percent. In an offset, gains in July proved more robust than initially reported with total industrial production revised 3 tenths higher to plus 0.9 percent and manufacturing revised 1 tenth higher, now also at plus 0.9 percent.

Motor vehicle production is August's disappointment, down 6.4 percent following July's giant 10.6 percent spike. When excluding motor vehicle production, however, industrial production was unchanged in August following respectable gains of 0.3 percent in the prior two months. But these readings are far from spectacular and the weakness in the latest month could be a signal of retrenchment tied to Chinese-based volatility.

Turning to the report's other two components, utility production rose 0.6 percent in August with mining at minus 0.6 percent. Mining, hit by weak commodity prices, has been hurting all year with the year-on-year reading at minus 3.2 percent. Utilities, however, are up 3.2 percent year-on-year which leads the major components as manufacturing's year-on-year rate is a soft looking plus 1.4 percent. Total industrial production is up only 0.9 percent year-on-year.

This weakness is reflected in capacity utilization which is at 77.6 percent in the August report, down 4 tenths in the month and 2 tenths lower than consensus. Manufacturing utilization is at a soft 75.8 percent vs an unrevised 76.2 percent in July.

The vehicle-led burst in the manufacturing sector faded noticeably by summer's end, a reminder that foreign demand for U.S. goods is weak and that the domestic energy sector is suffering. The consumer is the lead horse for the economy, making up for factory slack that the doves are certain to cite at this week's FOMC.

Recent History Of This Indicator:
There isn't any need for a rate hike based on expectations for industrial production which is expected to decline 0.2 percent in August, driven lower by an expected 0.3 percent drop in the manufacturing component. Expectations for the manufacturing component are tied to weak hour data in the monthly employment report. In July, the manufacturing component jumped sharply on strength in vehicle production.