November 16, 2021

Industrial production surged 1.6% in October after declining 1.3% in September  Production had been steadily climbing since reaching a low point in April of last year.   However, as shown below, production got hit hard in late August and in September by Hurricane Idea which blasted the Gulf Coast.  This turned out to be a temporary setback as production rebounded in October.  However, the manufacturing sector continues to deal with supply constraints and labor shortages which are curtailing the speed with which it can boost production.

The reason the manufacturing sector will continue to climb in the months ahead is because orders have been flowing in, but firms have been unable to boost production enough to keep pace with demand as they encounter an inability to find qualified workers and they face delays in getting the required production materials from their suppliers.  The ratio of the orders to inventories  components of the purchasing managers index is close to a record high level.  Manufacturers need to step up the pace of production if they can.

At the same time their supplier deliveries are within an eyelash of being the slowest on record.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 1.2% in October after having fallen 0.7% in September.  This series is slightly higher than where it was in February of last year — prior to the recession.

The manufacturing sector is being held back by the automobile sector as the chip shortage has curtailed auto production in recent months.  Automobile production jumped 11.0% in October but this follows a 7.1% in September which seems to be a post- Hurricane Ida rebound.  The supply and labor constraints in this sector do not appear to be getting any better.

High tech production was hit less sharply than most other sectors of the economy during the recession as business people turned to technology to help them cope with the fallout from the virus.  As a result high tech fell only slightly during the recession, and has now far surpassed its pre-recession high.  In the past year high tech production has risen 11.0%.  High tech spending helped the economy out of the recession.  It is also going to help businesses adapt to the new economy that is still evolving.

Mining (14%) output jumped 4.1% in October after declining  2.3% in September as Hurricane Ida took its toll on the  oil and gas industry along the Gulf Coast..  Mining has risen 11.8% in the past year.   Oil demand is strong as the global economy continues to recover.  But one of the lingering problems is the administration’s dislike for the fossil fuel industry and its efforts to, essentially, drive it out of basis in favor of more environmentally friendly means of production.

Utilities output rose 1.2% in October after falling 3.7% in September.  Over the past year utility output has risen 3.0%.

Capacity utilization in the manufacturing sector rose 0.9% in October to 76.7% after  having declined 0.5% in September.   It remains below the 77.4% level that is generally regarded as effective full capacity utilization but it is closing the gap..

We expect GDP growth of 8.0% in Q4.  That will give us 5.7% growth for 2021 and we expect 4.9% GDP growth in 2022.

Stephen Slifer


Charleston, SC