US industrial production misses forecasts due to drag from construction and materials

US industrial production undershot forecasts by a wide margin, amid declines in Mining and Utilities output.

According to the Department of Commerce, total production ticked lower by one tenth of a percentage point month-on-month in October (consensus: 0.2%).

By industry groups, manufacturing production increased by 0.1% over the month, while that in Mining and Utilities recorded drops of 0.4% and 1.5%, respectively.

Looking at the major market groups, production of final products increased by 0.4%, buoyed by 0.8% growth in output of business equipment.

Consumer goods' output was up by 0.1% on the month, buoyed by increases in automotive products, as well as for appliances, furniture and carpeting products.

However, non-industrial supplies' output fell by 0.2% on the back of a 0.7% drop in construction and a 0.4% decrease in Materials.

Dragging on the latter were widespread falls in nondurable materials and decreases in energy materials, especially of oil and natural gas extraction and of electricity generation, Commerce said.

The rate of total capacity use in industry slipped by 0.2 percentage points versus September to 79.9% (Consensus: 80.4%).

In comparison to the year earlier month, total industrial output was up by 3.3%.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, attributed the the decline in Mining to the fact that investment in crude oil production had fallen behind the rise in prices by a "significant margin".

Manufacturing output growth meanwhile had slowed to a 1.7% annualised for the three months to October, versus 3.1% in the three months to June, but given the tendency of the hard data to converge with the surveys, one had to assume that factory output would soon begin to fall.

"The upshot is that a recession in manufacturing still looks likely, as tighter financial conditions and an uncertain demand outlook take their toll," Shepherdson explained.

"Like housing, however, manufacturing only accounts for a small share of the economy—around 11% of GDP—and does not consistently lead other sectors. In other words, a manufacturing recession does not guarantee a downturn in the wider economy, particularly if consumers’ spending continues to hold up."