Industrial Production Lower Mainly On GM Strike

The effects of the now resolved GM strike have made a strong appearance in industrial production data and are largely responsible for two straight monthly contractions, at a much deeper-than-expected minus 0.8 percent in October following a revised minus 0.3 percent in September.

Motor vehicle production fell 7.1 percent in October following a 5.5 percent drop in September and even a 1.2 percent decline in August which was before the strike took effect. October's drop in vehicle production pulled down overall manufacturing output where volumes fell 0.6 percent, a result that is slightly more severe than Econoday's consensus and following September's 0.5 percent decline.

But the bad news isn't completely limited to vehicles. Production of business equipment fell 0.6 percent in October following a 1.1 percent drop in September in results that won't cool concern at the Federal Reserve over weakness in business spending. Yet other readings are likewise soft with volumes of consumer goods down 0.8 percent in a very steep drop that followed smaller declines in September and August. And despite signs of improvement in construction, supplies for the sector have been on a two-month slide, down 0.4 percent in October.

Outside manufacturing, mining continues to stagger, down 0.7 percent following a 0.8 percent drop in September. On the year, mining, where production growth had been in the double digits, is up only 2.7 percent in the latest data which, however, is still a respectable gain for volumes and compares with minus 1.5 percent for manufacturing. Utilities output, the third major component in the report along with manufacturing and mining, fell a monthly 4.0 percent in what likely reflects, not only weather effects, but also lower manufacturing volumes.

With the GM strike now over, vehicle production will presumably begin to reverse its declines and make for outsized overall gains in the coming months. Yet the strike hit a domestic manufacturing sector that has already been weakened by slowing export demand, creating the risk of dislocations in fourth-quarter factory data. Capacity utilization in today's report reflects the overall weakness, down 8 tenths in the month to a lower-than-expected 76.7 percent.