Those who are making the case that U.S. industrial production has bottomed may want to rethink that overly optimistic statement. While auto production will undoubtedly rebound in November, the problems at Boeing surrounding the 737 Max and the uncertainty tax imposed on firms caused by the trade conflict with China have knocked the air out of domestic industrial production.
Trade tensions have taken a toll on industrial production …
U.S. industrial production contracted by 0.8% in October — the most in 17 months, the Federal Reserve reported Friday. In addition, factory output fell by 0.6% and motor vehicle assemblies collapsed by 11%, almost all of it caused by the General Motors strike, which ended last month.
The year-over-year comparisons reveal the imbalanced state of the U.S. economy. Industrial production fell 1.1%, manufacturing declined 1.5% and durables manufacturing was off 2% — all linked to the trade tensions and Boeing’s struggles. At the same time, U.S. retail sales remained strong in October, increasing by a healthy 0.3%.
While demand for utilities declined 2.4% and mining output dropped 0.7%, all of this cannot be attributed to the weather, as some might be inclined to state. Rather, this has to do with the overall decline in demand driven by policy, labor strife and the self-inflicted wounds at Boeing. Our manufacturing index tends to suggest it may be some time before we can declare an all clear on risks to the outlook linked to industrial production and manufacturing.
Moreover, we are not optimistic that there is a so called “phase one” deal that would boost the domestic manufacturing sector or lift the veil of uncertainty that has dragged down business investment in general and capital expenditures in particular. Without a general rollback in tariffs — as opposed to not imposing further tariffs — we are generally skeptical at this point on a near term increase in overall production and manufacturing.
