Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Today brought a batch of manufacturing data that was rather grim. Regional manufacturing surveys from the New York and Philadelphia Fed were both in contraction territory in August and industrial production fell in July with downward revisions to prior data.
Tough Timing for the Utilities Comeuppance
We’d say, “Let’s get the bad part out of the way,” except that would not leave us with much to discuss. The July industrial production report was a disaster, but not an unmitigated one at least, more on that in a second. Manufacturing production was down 0.3%, mining output was flat amid refinery shutdowns due to Hurricane Beryl and utilities production fell 3.7%. In our June industrial production note, we said “at some point there will be a comeuppance when utility output reverts to the mean.” This is it.
To the extent there is a mitigating factor for manufacturing it is that the weakness is entirely in the manufacture of motor vehicles and parts. That category cratered 7.8% in July alone. Over the past year, motor vehicle production is off 9.4%. The trend normalization underway in the sector has included a few dreadful months like this over the past year. As supply chains heal and orders stabilize, we’d expect to see the ever-present volatility in this sector abate somewhat.