Industrial production dropped by more than expected in October as the United Auto Workers strike was felt in the economy. Production of motor vehicle parts fell by 10%, marking the biggest drop since the beginning of the pandemic.
The industrial production index declined by 0.6% on the month, according to Federal Reserve data released on Thursday. Along with a downward revision by the Fed to September’s reading, the weak data on industrial production should offset any upside surprises that came from retail sales data this week.
Even though the impact of the auto workers strike will fade in November are contracts are ratified, the drag on manufacturing output should keep gross domestic product for the final quarter largely unchanged at 1.4%, according to our estimate.
The declines in manufacturing orders cited earlier by a number of surveys showed up in Thursday’s data. Consumer goods, business equipment and business supply production dropped by 1.2%, 0.5% and 0.4%, respectively.
Read more of RSM’s insights on manufacturing and the middle market.
In a separate report from the Bureau of Labor Statistics, initial and continuing claims for unemployment insurance from last week added to an increasing number of reasons to expect a soft landing.
New claims rose to 231,000, significantly higher than expected, yet not enough to signal a downturn.
Continuing claims rose to 1.87 million, the highest since 2021. Because most of the increase in continuing claims took place in October, when a number of major strikes occurred, it is too soon to determine whether the upward trend will last or not.
The takeaway
There have been upside risks to growth in the final quarter as consumers and the job market have remained resilient. This also means upside risks to inflation. But given Thursday’s data, we are more comfortable with our baseline prediction for a quarter of a slowdown below trend, which should work in the Federal Reserve’s favor to keep inflation easing and to raise the chance of a soft landing.
