Industrial production up strongly in October, driven by motor vehicles and recovery from Hurricane Ida

Industrial production up strongly in October, driven by motor vehicles and recovery from Hurricane Ida

*Industrial production rose 1.6% in October, lifted by an 11% monthly increase in production of motor vehicles and parts and a 1.2% monthly increase in utilities production reflecting the unseasonably cold weather (Chart 1). Industrial production in manufacturing rose 1.2%, lifting its yr/yr rise to 4.4%, as producers struggle with supply constraints and are unable to meet strong product demand.

* Motor vehicle production surged 17.9% m/m, but remains 15% below its February 2020 level (Chart 2). Semiconductor fabricators are beginning to ramp up production, and auto manufacturers have indicated they expect auto production to accelerate to its pre-pandemic pace in the near term. Capacity utilization among motor vehicle and parts manufacturers rose to 69.8%, its highest level since July, and is poised to rise even further both to meet strong current demand for autos and to replenish auto inventories at the retail trade level, which are $90 billion (33%) below their pre-pandemic levels in real terms.

*Among durable goods, production of wood products (+0.6 %), primary metals (+0.7%), fabricated metal products (+0.2%), and aerospace and other transportation equipment (+1.34%) posted healthy increases while production of electrical equipment, appliances and components declined (-1.56%). Production of durable goods is likely to accelerate as supply bottlenecks ease to meet strong current and prior demand: manufacturers’ unfilled orders for durable goods rose 4.7% yr/yr in September and are 5.7% above their January 2021 trough.
* The expansion of industrial production in October also reflects the rebound in manufacturing following Hurricane Ida. Ida’s disruption of economic activity in early September contributed 0.6 percentage points to September’s decline in industrial production, while the recovery from Ida accounted for approximately half of October’s increase (0.8 pp).

*Manufacturing production is at its pre-pandemic level (Chart 4). Among nondurable goods, production is down in textiles and paper, and up in petroleum and coal, apparel, and chemicals. The increase in petroleum production despite regulatory and social pressures against drilling and the industry in general reflects the extent of the rise in oil prices. The oil and gas well drilling component of industrial production rose 9.3% m/m, but remains 23% below its February 2020 level, and will contribute to further expansions in petroleum production in the near term. Increased expenditure by oil and gas drilling companies will support the BEA’s estimate of structures investment in Q4 (Chart 5).

Chart 1: Industrial Production Index

Chart 2: Motor Vehicle Production

Chart 3: Industrial Production Index – Fabricated Metal Products & Primary Metal

Chart 4: Industrial Production – Manufacturing

Chart 5: Industrial Production – Petroleum and Coal Products, Oil and Gas Well Drilling

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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