Industrial volume in August rose by 0.4% to the highest level in 11 months, nearing the record registered last September.
The increase was stronger than expected, reflecting a boost from machinery production and mining, which increased by 2% and 1.4%, respectively. Those categories account for more than 20% of all production.
As energy prices remain elevated compared to a couple of months ago, we should expect further increase in mining activity in September.
Motor vehicle production plunged by 5% following a 5.1% increase in July. The United Auto Workers strike will certainly add more stress on the sector in September, with the risk of carrying over to October and beyond if the strike continues.
But the strike’s impact on overall production might be more limited because the sector accounts for less than 5% of total industrial activities, and as demand for motor vehicles continues to slow.
In terms of market groups, consumer goods and construction supplies were the only two categories that declined in August, by 0.2% and 0.4%, respectively. All other groups showed strong increases, especially energy (1.5%), electronics (1.1%) and information processing (1.2%).
Capacity utilization also came in higher than predicted at 79.7%, led by mining capacity, which increased to 94.3% from 92.9%
In a separate report from the University of Michigan on Friday, consumer sentiment In September fell to the lowest level in three months, driven largely by declining sentiment on personal income and household finances, and by rising gasoline prices. All subindexes for household finances and income fell on the month.
Spending intentions fell to the lowest level in four months for all categories: major household items, vehicles and houses.
Notably, inflation expectations dropped sharply to 3.1% for 12 months and to 2.7% for five to 10 years.
Those are the lowest levels for inflation expectations in more than two years. That should reassure the Federal Reserve, which meets next week, during a period when inflation, especially the headline figure, begins to show a rebound.
Read more of RSM’s insights on the economy and the middle market.
Learning from what has happened in the past two years with inflation, it is likely the case that consumers will also look through this episode of rising energy prices and focus more on other core categories that affect them.
At the same time, falling prices of cars, rent and housing should alleviate some of their concerns over inflation.