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Econ Wrap-Up: Industrial Production and Housing Market Index

12/16/2014
By Jennifer Coombs

The US manufacturing sector appears to be making an overall comeback. Industrial production during the month of November jumped by 1.3% after edging up only 0.1% in October, which was due to weakness in utilities in mining. Consensus only called for a 0.7% increase in November. Manufacturing increased by an impressive 1.1% in November following a gain of 0.4% in October, and well above expectations at 0.6%. Factory output also witnessed its largest gain since February 2014. Mining slipped 0.1% by November, following a 1.0% drop In October, while utilities rebounded 5.1% after a 0.7% decline in the month before. The indexes for both durables and nondurables increased more than 1.0% in the month, and the output of every major industry group increased or remained unchanged. Among durable goods industries, the output of motor vehicles and parts jumped 5.1% as a result of an increase of 900,000 units at an annual rate in total motor vehicle assemblies, which is also positive for the outlook of auto sales. Among nondurable goods industries, output advances of more than 2.0% were observed in petroleum and coal products and by apparel and leather. The indexes for food, beverage, and tobacco products and for plastics and rubber products both increased 1.4% in the month. As noted in the chart below, capacity utilization has made an impressive comeback since the recession. Overall capacity utilization increased to 80.1% in November from 79.3% in October. The last time capacity utilization came in above 80% was in March 2008.

November manufacturing activity was strong in the U.S. despite sluggishness in Europe and Asia, so this may result in economic tightening at the Fed sooner than expected.

Additionally, national homebuilders seem to embrace the fact that their businesses are recovering at a slower-than-expected pace. The National Association of Home Builders (NAHB) noted that builder confidence still remains quite strong in December at a reading of 57. Although this reading is slightly below November’s 58-level, and on the lower end of expectations (which were at 59), this is the 6th consecutive reading above the breakeven level of 50. Strength in December was concentrated on the expectation of futures sales, which came in at 65; slightly lower than November’s reading of 66. Current sales were also strong at 61, but below November’s level of 62. Continuing to lag behind is the traffic component, unchanged at 45 in a reading that underscores the lack of first-time buyers in the housing market. This report isn’t a major market mover, but it’s a positive indication for the housing sector which appears to going into the end of 2014 as relatively unchanged over the year before. Tomorrow we will receive a reading on housing starts, which are expected to show a bounce higher for starts but are also expected to show a decline for permits.

Jennifer Coombs
Wall Street Strategies

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