Auto Assemblies Fall, but Leading Indicators are Positive
- Industrial Production increased by 0.2 percent in July as vehicle assemblies fell.
- The Conference Board’s Leading Economic Index increased by 0.3 percent in July.
- Initial Claims for Unemployment Insurance fell by 12,000 for the week ending August 12, to hit 232,000.
Total industrial production increased by 0.2 percent in July, boosted by a rebound in utility output. A mid-summer heatwave raised utility output by 1.6 percent in July, after falling by 1.2 percent in June. Output in the mining sector increased by 0.5 percent in July, the fourth consecutive monthly increase. With a flat U.S. drilling rig count from early July through mid-August, we may see smaller gains in output going forward. Output in the manufacturing sector eased by 0.1 percent in July. Manufacturing accounts for about 76 percent of all industrial output, so the small decline there held down the headline index despite gains in utilities and mining. Durable goods manufacturing was the key drag as output in motor vehicles and parts dipped by 3.6 percent. Vehicle assemblies, counted on a unit basis, declined from an 11.07-million-unit rate in June, to 10.29 million in July, a 7 percent drop. This was the lowest assembly rate since July 2013. We expect vehicle assemblies to bounce back in August, but there is a clear declining trend from the peak rate of 12.94 million units set in July 2015. A cheaper dollar and a synchronized global expansion will help export oriented manufacturers, countering some of the drag on headline IP from waning auto sales. However, a cheaper dollar will also make imported parts and materials more expensive for all manufacturers.
The Conference Board’s Leading Economic Index increased by 0.3 percent in July, the 11th straight monthly increase for the series. The strongest positives came from the interest rate spread, new manufacturing orders and consumer expectations. The only negative contributor, out of 10 components, was building permits. The Coincident Index and the Lagging Index were also positive for the month, consistent with our expectations of ongoing moderate real GDP growth through the third quarter.
Labor indicators continue to point to tight conditions. Initial claims for unemployment insurance decreased by 12,000 for the week ending August 12, to hit 232,000. Continuing claims dipped by 3,000 for the week ending August 5, to hit 1,953,000. These are very good numbers, consistent with ongoing moderate payroll job growth through August.
Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is down to 2.21 percent. NYMEX crude oil is up to $46.90/barrel. Natural gas futures are up to $2.96/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Industrial Production 08-17-17.