Industrial Production Pitstop in August 2010

Data Breakdown

The Industrial Production report for August provided the key data-point for the day's business wire. On the surface, the report offered an in-line result that seemed to provide traders with a ho-hum impetus on the morn. However, as usual, your hard-working independent analyst offers some important insight.

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Industrial Production August 2010

Industrial production gained 0.2% in August, matching economists' views. However, July's rate of expansion was revised downward to +0.6%, from +1.0% initially reported. That's a four-tenths of a point reduction and is significant. Arguably, without that cut, August's data would have disappointed investors this morning. This is similar insight to that provided in yesterday's Retail Sales Report recap.

The Federal Reserve reports that the month of August was impacted by a pullback in motor vehicle production, which fits with other data we have recently received on auto industry stalling. This sector weakness is important to note, because similarly to the housing industry, auto market activity reflects the health of the broader US marketplace. Owning a car in America is akin to homeownership and the love of apple pie and baseball, or at least it used to be in the days of free money. At least that's the case outside of New York City, where we still get around on our own two legs and an ever more costly transit system (the resourceful among us ride bikes too).

The Fed reports that excluding auto production, manufacturing output increased 0.5% in August (against the revised comparable). To be fair to my Ford (NYSE: F) friends, July offered robust auto manufacturing, and made for a tough comparable this month. Evidencing this fact, July's production gain excluding autos was just 0.2%. The optimists among you will be profoundly moved by the news that production was 6.2% higher than August of last year. The rest of you will blow it off wisely.

Let's get dirty now, and look at the details. We'll start with the bad news. Consumer goods production fell 0.4% in August, after rising 0.8% in July. That's quite sad, until you realize most of this stuff is made in China anyway, and therefore, the line item is relatively insignificant. Heck, most everything is made overseas now, which leaves the manufacturing sector with only about a 10% importance with regard to total GDP. We are a service providing nation people; we will do your nails, deliver you pizza, do your taxes and even sell you an advertisement on a blog. We even do windows for heaven's sake! But, if you want a cool electronic device, you'll find it has covered more ground than Michael Vick did last weekend against the Packers.

Regarding consumer goods, the index for consumer durables fell 3.0 percent (bad news for Whirlpool (NYSE :WHR) and GE (NYSE: GE) we assume). The output of automotive products recorded the largest drop, 5.2 percent, and the output of appliances, furniture, and carpeting declined 2.1 percent. The production of nondurable consumer goods rose 0.3 percent (Where would you find this US made stuff anyway?). A gain of 1.0 percent in the non-energy category more than offset a decline in the energy category. Within non-energy nondurables, the indexes for foods (the only thing we still make other than guns) and tobacco, for clothing, and for paper products each moved up more than 1.0 percent, and the index for chemical products increased 0.6 percent after having declined for four consecutive months. The production of consumer energy goods fell 2.2 percent in August.

Business equipment production increased 0.7%, against a 1.0% increase in July. You tell me, does New York based Steelcase (NYSE: SCS) make office furniture in the States? Maybe Staples (Nasdaq: SPLS) does; probably Dunder Mifflin anyway. Wait a second, is Dunder Mifflin a real company or is this website a production of The Onion?

Among business equipment categories, the output of transit equipment increased 1.4 percent in August (there are about a thousand MTA jokes I could come up with here), and the indexes for information processing equipment and for industrial and other equipment recorded smaller gains. The production of transit equipment was boosted by an advance in the output of civilian aircraft. The index for defense and space equipment fell 0.3 percent after having jumped 1.9 percent in July. In the future, we can look for the President's railway stimulus to give rise to gains here, but for decreases in defense spending to offset those somewhat (assuming it passes).

Here's an interesting point: The production of construction products increased 0.8% in August, marking the first rise since April. Production in manufacturing (generally) rose 0.2 percent in August, and the factory operating rate moved up to 72.2 percent, a rate 7.0 percentage points below its 1972 to 2009 average (that's not good). The output of furniture and related products decreased 1.8 percent in August, but output in this category remained 2.2 percent above its year-earlier level.

Stop the presses! Capacity Utilization declined in August, to 74.7%, down from July's 74.8% and off the same forecast for August. Capacity utilization rates at industries grouped by stage of process were as follows: For the crude stage, utilization increased 0.9 percentage point, to 85.4 percent, a rate that was 1.1 percentage points below its 1972 to 2009 average; for the primary and semifinished stages, utilization edged down 0.1 percentage point, to 72.4 percent, a rate 9.2 percentage points below its long-run average; and for the finished stage, utilization increased 0.1 percentage point, to 73.5 percent, a rate 4.0 percentage points below its long-run average.

Folks, the industrial production report for August illustrates a stalling auto sector and general economy. Capacity utilization had been on a steady increase, and finds here its first back-step. Manufacturing employment has shown signs of change of late as well. The small manufacturing sector took a beating in the downslide, but had been a source of new jobs for many months since. Finally, we appear to have normalized to a state of cool economic demand, which is logically situated on the unstable footing of a near 17% under-employment situation. No surprise for Wall Street Greek readers, but market gurus have only just gotten on board, and the market too, over the last few months.



This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Nobility Homes (Nasdaq: NOBH), Palm Harbor Homes (Nasdaq: PHHM), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), NVR (NYSE: NVR), DR Horton (NYSE: DHI), Pulte (NYSE: PHM), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), CRH (NYSE: CRH), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC).

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