Tags: factory | production | industrial | auto

Factory Production Keeps Falling Despite Auto, Energy Output

Factory Production Keeps Falling Despite Auto, Energy Output

(Stock Photo Secrets)

By    |   Thursday, 18 August 2016 06:00 AM

Industrial production declined for the eleventh consecutive month in July, down 0.5 percent from July 2015. Though the slope of the contraction continues to be unusually shallow, the fact that it has lasted for nearly a year now is significant.

On a monthly basis, production is up from its low in March particularly in the past two months -- though the rise in July is susceptible to revision next month, as June’s increase was revised significantly lower with this month’s release.

Since February, any sign that the economy doesn’t appear to be getting worse has been met with a tremendous sigh of relief as if the whole matter has concluded. Every monthly gain, no matter if still in contraction year-over-year, is greeted enthusiastically as if that were the case.

But individual segments of the production data are cause for worry.

Manufacturing of consumer goods remains seriously and conspicuously subdued and is weaker this year than in 2015.

A slowing pace of automobile production is partly responsible. Motor vehicle assemblies, for example, which had declined sharply in May only to rebound in June, were back down again in July, keeping the level of auto production increasingly below its prior trend.

That is a troubling development given that the auto sector has been one of the bright spots in the “goods economy.” It is also consistent with what we find in retail sales, as well as recent pronouncements from the industry itself about plateauing sales. Without the usual boost from the auto sector, industrial production overall should struggle to regain any momentum beyond the current seasonality.

Energy Production Dragging

The other major support for U.S. industry had been oil and gas production. The crash in oil prices, no matter the rebound so far this year, has clearly ended that trend; the idea of “transitory” is exclusively the domain of politicking. Oil production in the mining sector is only now starting to become a significant drag on overall industrial activity in the U.S. Year-over-year, production in oil is down 10 percent and there doesn’t appear to be any rebound in the near future.

Instead, at least as far as the Fed’s IP statistics are concerned, the contraction in oil production seems to be gaining even as oil prices are back into the $40’s once again. That would appear to confirm that domestic production needs a much higher oil price and likely for more than just a brief appearance.

Pitifully Weak

If both the auto and oil sectors continue to drag that would mean an even greater threshold for U.S. industry to resume even marginal growth. The pitifully weak “recovery” so far had been largely based on those two efforts; without them, the economy would need to find truly surging alternatives.

Given that auto sales have drastically slowed and production of consumer goods overall has been down for years, it is quite unlikely the consumer sector will be of any help (which again deviates almost totally from the unemployment rate).

That leaves either utilities (which would mean another “tax” on increasingly exhausted consumers) or an imminent surge in capital expenditures. With profits, cash flow and earnings also contracting and restrained, that doesn’t seem likely either.

It looks as if the trajectory of U.S. industry in the intermediate period ahead will be determined by marginal auto production. Should it continue to fall below trend, overall industrial production may continue to be flat to slightly negative.

Watch Inventory Levels

If motor vehicle production starts to fall off in more recessionary fashion, there’s an increasing possibility that the same would occur in more than just the auto industry.

The key will be, as always, the effect on inventory. Will slowing the pace of production be enough to start to bring down the inventory on the wholesale level, not what’s in dealer showrooms and on their lots?

What is left beyond is the true state of the U.S. economy especially since 2012, now laid bare, stripped of its two major artificial enhancements.

Jeff Snider is head of global investment research for Alhambra Investment Partners. To read more of his work, CLICK HERE NOW.


 

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
JeffSnider
Industrial production declined for the eleventh consecutive month in July, down 0.5 percent from July 2015. Though the slope of the contraction continues to be unusually shallow, the fact that it has lasted for nearly a year now is significant.
factory, production, industrial, auto
686
2016-00-18
Thursday, 18 August 2016 06:00 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved