• INDICATOR: September Industrial Production and August Job Openings
• KEY DATA: IP: -0.2%; Manufacturing: -0.1%/ Openings: -298,000; Hires: +13,000
• IN A NUTSHELL:  “The manufacturing moderation is continuing.”

 

WHAT IT MEANS:  The economy may be moving forward and consumers may be buying goods, but we are hardly looking at booming growth.  Industrial production eased in September and while continued cut backs in the energy sector led the way, manufacturing didn’t do a whole lot either.  In part, the manufacturing problems are related to the energy problems as firms are cutting back on their investment in energy-related investment projects.  The strong dollar isn’t helpful either.  But it wasn’t just the oil-patch that is slowing activity.  Six of the eleven durable goods industries and half of the nondurable industries reduced their production levels.  Interestingly, while August and September may have fantastic for vehicle sales, it was very good for vehicle assemblies, which declined both months.   

On the labor front, I guess when a position cannot be filled for an extended period, even HR people realize it doesn’t make much sense to keep advertising the opening.  The number of job openings declined fairly sharply in August and it wasn’t because firms hired like crazy.  Yes, payrolls did rise, but only modestly. 

I have argued that part of the reason for the slowing job gains is not demand but supply and the continued low level of quits (they rose minimally in August), indicates that people are not willing to take a chance on finding or even accepting a position in a different company.  That makes it tough to fill the openings. 

There was one bit of good economic news released today.  The University of Michigan’s mid-month reading on consumer sentiment rose much more in early October than expected.  The dive in confidence last month looks like it was stock market driven and the recent improvement has buoyed household perceptions of the world. 

MARKETS AND FED POLICY IMPLICATIONS: Second quarter GDP will be released in about two weeks and it is hard to expect that the growth will be anywhere near the second quarter’s 3.9% rate.  My guess is in about 2.2%, but a little higher or lower will not change the perception that growth is just not accelerating.  That said, the domestic economy is generally good and wages are rising and incomes are growing.  Consumer spending, though moving in fits and starts, is still pretty decent. 

But if the Fed is data dependent, the “more of the same” growth rate shouldn’t force anyone’s hand.  If we didn’t get a rate hike after nearly 4% growth, why should we get one with just 2% growth?  That is not to say it will not happen. 

There are still two employment reports and one Consumer Price Index and Employment Cost Index numbers that are to come out before the December meeting.  But they have to point to really strong job growth, solid wage gains and accelerating inflation if this fearful Fed will find the courage to raise rates.