September Industrial Production and Pending Home Sales, October Texas MF
Production Driven by Utilities. Housing Indicator Shows Vulnerability
- Industrial Production for September increased by 0.6 percent as utility production rebounded.
- The Pending Home Sales index for September declined by 5.6 percent, the fourth consecutive drop.
- The Texas Manufacturing Outlook Survey improved in October as production increased.
Industrial production for September increased by 0.6 percent. This was the strongest increase in IP since last February. However, the gain in the headline index came from utility output. Manufacturing output was up only 0.1 percent for the month. Utility output increased by 4.4 percent in September, reversing five consecutive monthly declines. On a seasonally adjusted basis, utility output for September is still below where it was last March. Output among durable goods manufacturers was solid in September, increasing by 0.5 percent. The auto sector paced the group, gaining 2.0 percent for the month. Auto sales for October will be a key factor for industrial production for the remainder of the year. Auto sales in September fell from the strong 16.1 million unit pace in August, down to a 15.3 million unit rate in September. If we see a bounce back in October, the auto group will continue to support manufacturing production. However, another soft auto sales month in October could result in a downshift in auto production for the remainder of the year. The October auto sales numbers are due out on November 1; we expect to see a moderate bounce back to around a 15.8 million unit sales rate. Output in nondurables manufacturing declined by 0.3 percent in September, held back by declines in textiles and printing.
The Pending Home Sales Index declined in September by 5.6 percent. This was the fourth consecutive decline for that index. The index is now even with where it was last December. Over the previous 12 months, the index was down 1.2 percent. The recent downtrend in the PHSI underscores the vulnerability of the housing market to both rising mortgage rates and declining consumer confidence. It may also signal a little less support to the market from institutional buyers who have been a major support to the existing home market. On the one hand, mortgage rates are still very low. On the other hand, any increase in mortgage rates is a headwind to those buyers who are reaching to qualify. Conventional mortgage rates are now about a full percentage point above where they bottomed out late last year. According to the Mortgage bankers Association website, the rate on a 30-year fixed rate mortgage declined from 4.46 percent for the week of October 11, to 4.39 percent for the week of October 18. According to the Federal Reserve Bank of Dallas, the Texas Manufacturing Outlook Survey showed improving conditions in October.
Market Reaction: Equity markets are up. Treasury yields are essentially unchanged. Oil is down to $98.42/barrel. The dollar is down against the yen and the euro.
For a PDF version of this Comerica Economic Alert click here: Industrial Production 102813.