Production Stalls after April Surge
- Industrial Production was unchanged in May as vehicle assemblies declined.
- Initial Claims for Unemployment Insurance dipped by 8,000 for the week ending June 10, to hit 237,000.
Industrial production for May was unchanged after surging by 1.1 percent in April. The May stall came as manufacturing output decreased by 0.4 percent, while utilities gained 0.4 percent and mining output increased by 1.6 percent. Manufacturing output was weakest among durable goods industries, weighed down by a 2.0 percent dip in motor vehicles and parts production. Vehicle assemblies eased from an 11.77 million unit annual rate in April to 11.54 in May. We expect auto production in the second half of this year to remain below the strong 12.18 million unit rate for 2016 as vehicle sales ease this year. We forecast sales for 2017 coming in at about 16.9 million units. Output in the mining sector has increased this year, following the drilling rig count upward. It looks like the global oil market is set to enter the second half of the year still oversupplied, keeping prices weaker than expected. So far, the rate of increase in the drilling rig count looks steady. But that will not continue forever and so the gain in mining output also has an upper limit. That limit will be determined by the ability of U.S. drillers to remain profitable with an extended period of low prices, and by the reaction of OPEC members to an extended period of low prices.
Labor market indicators continue to show tight conditions that are normally consistent with gains in wages and salaries. To date we have only seen moderate gains in earnings. But that story could change as companies work harder to find and retain employees. Initial claims for unemployment insurance decreased by 8,000 for the week ending June 10, to hit 237,000. This is a very low level and is about where we have been all year. Continuing claims gained 6,000 for the week ending June 3, to hit 1.935,000, also a very low level.
Regional manufacturing conditions look good in the Northeast. The Federal Reserve Bank of Philadelphia’s manufacturing survey showed strong and improving current conditions for June, as did the New York Fed’s manufacturing survey.
The National Association of Homebuilders’ Housing Market Index fell to 67 in early June from 69 in May. Builder confidence remains high. According to the NAHB, builders continue to express frustration about the shortage of skilled labor and buildable lots.
Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds is up to 2.16 percent. NYMEX crude oil is down to $44.50/barrel. Natural gas futures are up to $3.03/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Industrial Production 06-15-17.