Man­u­fac­tur­ing con­tin­ues to be a drag on the econ­omy

Daily Local News (West Chester, PA) - - MARKETPLACE - Joel L. Naroff is pres­i­dent and chief economist of Naroff Eco­nomic Ad­vi­sors. He can be reached at 215-497-9050 or joel@narof­fe­co­nomics. com. On the Web: www. narof­fe­co­ Joel Naroff Colum­nist

IN­DI­CA­TOR: >> Septem­ber In­dus­trial Pro­duc­tion and New York Fed Sur­vey KEY DATA: >> IP: +0.1 per­cent; Man­u­fac­tur­ing: +0.2 per­cent/ NY Fed: -4.8 points IN A NUT­SHELL: >> “Man­u­fac­tur­ing re­mains soft but there might be some signs that the bot­tom is be­ing reached.” WHAT IT MEANS: >> It is hard to have a full-blown, strong eco­nomic ex­pan­sion if the man­u­fac­tur­ing sec­tor is hurt­ing and that has been the case this year. It can­not be said that con­di­tions are good, but they may not be de­te­ri­o­rat­ing any more. In­dus­trial pro­duc­tion rose mod­estly in Septem­ber after a sharp de­cline in Au­gust. Man­u­fac­tur­ing out­put was up a lit­tle faster, but a ma­jor drop in aerospace re­strained ac­tiv­ity. Boe­ing still has a huge back­log, so that is not likely to con­tinue.

More wor­ri­some was con­tin­ued weak­ness in ma­chin­ery. That may in­di­cate un­cer­tainty on the part of busi­nesses about the fu­ture di­rec­tion of the econ­omy and an un­will­ing­ness to make any ma­jor bets. Over­all ac­tiv­ity was re­strained by de­clin­ing util­ity pro­duc­tion. It’s tough to sea­son­ally ad­just for the weather when there is cli­mate change. (No, I don’t think it is a hoax per­pe­trated by the Chi­nese.)

But the most op­ti­mistic num­ber in the re­port was the ro­bust gain in pe­tro­leum pro­duc­tion. Out­put is now ac­tu­ally up over the year.

While there may be some hints at con­di­tions im­prov­ing in the In­dus­trial Pro­duc­tion re­lease, con­di­tions in the New York Fed’s re­gional man­u­fac­tur­ing sec­tor fal­tered fur­ther. Or­ders are still de­clin­ing, but less so. How­ever, op­ti­mism about the fu­ture is im­prov­ing. This part of the coun­try is not a hot bed of in­dus­trial ac­tiv­ity, but a de­cline there is another in­di­ca­tion that man­u­fac­tur­ing has a way to go be­fore it can start adding greatly to the econ­omy. MAR­KETS AND FED POL­ICY IM­PLI­CA­TIONS: >> While man­u­fac­tur­ing has been soft, that doesn’t mean the do­mes­tic econ­omy is fall­ing apart. Re­mem­ber, we are in a global econ­omy and world growth and the value of the dol­lar mat­ter. Those fac­tors have been work­ing against the sec­tor. In ad­di­tion, the col­lapse of the oil com­plex has hurt firms that pro­vide goods, much of them man­u­fac­tured, to the en­ergy com­pa­nies.

But as No­bel Lau­re­ate Bob Dy­lan wrote: The times, they are a changin’. En­ergy prices are no longer sink­ing like a stone and firms are start­ing to swim again (apolo­gies to those who know the lyrics).

In­deed, rig counts are ris­ing con­sis­tently and are up sharply from the bot­tom reached in the spring. We might even see some in­vest­ment in the in­dus­try in 2017. That would be a great turn­around that could help the man­u­fac­tur­ing sec­tor. But that re­mains a hope, not a re­al­ity.

For the mar­kets, though, Mon­day’s re­ports prob­a­bly will not have much of an im­pact. We are in earn­ings sea­son. But for the Fed, which pro­duces the in­dus­trial pro­duc­tion data, the re­cent data pro­vide a lit­tle for ev­ery­one. The pro­duc­tion rise was mod­est enough so those that want to wait can say eco­nomic con­di­tions are still not great. Mean­while, those who want to hike rates can say the worst looks to be over, es­pe­cially with the dol­lar off its highs and rea­son­ably sta­ble. Which means, we are still nowhere when it comes to hav­ing data that de­mands a Fed rate hike. Of course, that is only a con­cern to those who ac­tu­ally think the Fed is data driven.

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