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US industrial output growth nearly stalled in August

作者: Jessie GUO,Harrington ZHANG,Edith Qian
时间: 2020年09月16日
重要性: 一般报告
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摘要: Report title:US industrial output growth nearly stalled in August
Analyst:Jessie GUO,Harrington ZHANG,Edith Qian
Report type:Macro
Date:20200916
[Summary]

■ Industrial production growth slowed significantly in August
■ IP still 7.3% below pre-COVID level even after 4-month of rebound
■ Production has further to catch up given the low level of inventory

What’s new. On September 15, data released by the Federal Reserve shows that industrial production grew 0.4% mom in August, missing the consensus of 1.0%, down from 3.5% in July. Manufacturing production increased 1.0% mom, also missing the consensus of 1.3% (July: 3.9%). This indicates the US industrial output rebound came almost to a halt in August, while the manufacturing also slowed significantly. After 4-month of strong gain, industrial output remains 7.3% below the pre-COVID level.

Headline production was mainly dragged by meteorological events. Mining production dropped by an unexpected 2.5% mom in August, the Fed reported that this was mainly due to Tropical Storm Marco and Hurricane Laura caused sharp but temporary decline in oil and gas extraction and well drilling, and the good news is that this is not expected to continue. The utilities output also declined in August, down by 0.4% mom as both electric and gas utilities output decreased slightly, possibly due to the unusual cool weather that had reduced air-conditioning usage.

Manufacturing production rebound faded in August. The output of manufacturing sector edged up merely by 1.0% mom in August after a strong recovery in the previous 3-month, The significant deceleration was mainly due to a decline in durable goods manufacturing, which in turn was caused by a 3.7% mom drop in the output of motor vehicles and parts, despite this was more than offset by broad-based increases for other durable goods industries. Aerospace transport equipment rebounded 4.2% mom, but remains nearly 20% off the level at the start of this year.

Non-durables output increased 1.2%, with gains of more than 3% for apparel and leather and for plastics and rubber products. Overall, the manufacturing output is still 6.7% below the pre-COVID level, but we are not overly concerned with at this stage, given the soaring demand for motor vehicles and low inventory, production will eventually catch up.

Broad slowdown across market groups. Consumer goods output rose 0.3% mom last month; while business equipment up 1.9% mom, both saw a substantial slowdown from July. However, construction output increased 1.2% mom, which might be a good reflection of the booming housing market. Moreover, capacity utilisation increased trivially to 71.4% in August from an upwards revised 71.1% in July, in line with the consensus, but remains far below the February level of 76.9%. Both mining and utilities industries’ utilisation declined in August.

Our view: The significant slowdown of industrial production in August was due to a combination of factors and some of them are clearly one-off. Particularly, given the low level of mining and utilities output, mean reversion means both still have room for further improvement. While it is reasonable to assume auto output recovery has lost some momentum after 3-month of strong surge, the soaring consumer demand and low inventory level imply that its production still has plenty of fuel left in the tank. Meanwhile, the lagging output and extremely low inventory/sales ratio could suggest an upside risk to inflation over coming months.

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