Industrial Production Slightly Lower-Than-Expected

Hurricane-related contraction in utility output and contraction in the usually strong mining component offset a respectable rise in manufacturing, all making for a slightly lower-than-expected 0.1 percent increase in total industrial production for October.

Utility output fell 0.5 percent in the month as Hurricane Michael, which struck Florida at mid-month, resulted in outages for as many as 1.7 million electricity customers across six states. And mining was also a negative, with volumes contracting 0.3 percent following a 0.1 percent decline in September. But the weakness may be an outlier for mining as year-on-year growth is still safely in the double digits, at 13.1 percent. Utility production year-on-year is up only 1.7 percent.

Manufacturing volumes rose an as-expected 0.3 percent in the month with this year-on-year rate at 2.7 percent. Production of business equipment, up a monthly 0.8 percent, and construction supplies, up 0.6 percent, were both very strong, the former hinting at a fourth-quarter rebound for business investment and the latter reflecting heavy demand in construction where material shortages are being reported.

Soft spots for manufacturing include a 2.8 percent monthly drop for motor vehicles and no change for the selected hi-tech component.

Overall capacity utilization came in at a stronger-than-expected 78.4 percent in October with September revised sharply higher to 78.5 percent. Mining capacity in October fell back 8 tenths to 92.7 percent with utilities down 5 tenths to 77.3 percent, offsetting a 1 tenth gain for manufacturing to 76.2 percent.

The gain for manufacturing led by business equipment and construction supplies is the good news in today's report and points to a healthy conclusion for what has been a positive 2018 factory sector.

Note that traditional non-NAICS numbers for industrial production may differ marginally from NAICS basis figures.