The devastating storm that struck the East Coast in late October, and which took so much of a toll on so many victims, has claimed another casualty--namely the nation's manufacturing base. Specifically, U.S. industrial production fell by 0.4% last month; a gain of 0.2% had been the consensus expectation.
Meanwhile, September's estimated increase was halved from a gain of 0.4% to an increase of just 0.2%. Estimates are that Sandy may well have knocked as much as a full percentage point off of the presumptive gain had the storm not occurred. Just days ago, the nation's retail sales for October came out and there, too, the storm's effect was material, as spending declined during the latest month.
In fact, one wonders what the ultimate price tag will be since the hurricane struck on October 29th, taking hold for just three days of the month. The impact on industrial production for November could also be severe--but we will need to wait another month for that data to be issued.
As for the latest month, there were reductions in the output of utilities, chemicals, food, transportation equipment, and computers and electrical equipment.
This decline, whatever the causes is disconcerting. Manufacturing has been one of the chief contributors to the listless, but ongoing, business expansion. And the manufacturing component, alone, lost 0.9% from the month before, although it was still up by 1.6% on a year-to-year basis. The manufacturing decline offset gains in output from the nation's mining industry, where the month-to-month increase was a formidable 1.9%. Utility output was essentially flat, falling just 0.1%.
Meanwhile, the setback in manufacturing was the second sharp retreat in that key category in three months. In all, this metric, which as noted above fell by 0.9% last month, also tumbled by that amount in August. Those sharp declines sandwiched a nominal 0.1% increase in September. Thus, manufacturing seems to be faltering on a rather regular basis now, following some earlier strength in 2012.
In addition to the aggregate output at the nation's factories, mines, and utilities, the nation's factories operated at 77.8% in October. That was down from the downwardly revised figure of 78.2% in September. (Initially, the usage rate for September had been estimated at 78.3%.) The recent operating rate remains some 2.5 percentage points below the overall average for the period from 1972-2011.
As for the manufacturing outlook, the next reading we will get is on December 3rd when the Institute for Supply Management will issue its monthly survey on this sector. For October, that metric came in at a reading of 51.7--which indicated an overall expansion. (Any reading above 50.0 suggests that this key area is advancing.) Our sense is that November's data will show a material setback due principally to the hurricane.
Taken as a whole, this was a disquieting report, and is in line with most other recent issuances. Our thinking now is that GDP in the current quarter will show an increase of just 1.2%-1.5%, with the risks probably to the downside. We expect there to be some pickup in business from the storm early next year, but for now at least, the pressure will be to the downside. - Harvey S. KatzAt the time of this article's writing, the author did not have positions in any of the companies mentioned.