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Industrial production in the US rose 0.4% in August (4.9% y/y, highest since 2010). According to analysts at Wells Fargo, the energy sector is propelling production again, but they see some risks for manufacturing ahead.  

Key Quotes:  

“Over the past three months, production has risen at a 5.7% clip. That’s slightly ahead of the 4.9% gain over the past year, which is the strongest 12-month change since 2010.”

“The standout of both the August report and the upward revisions to July was the mining sector. Mining, which accounts for 14% of industrial production, rose 0.7%.”

“Manufacturing production, on the other hand, came in a bit light. Total output at the nation’s factories rose 0.2%. Widespread declines in nondurables (down 0.5%) held down the gain. There were a few pockets of strength in manufacturing last month, but we are cautious to read too much into these gains. Motor vehicle and parts production jumped 4.0%.”

“The strength in motor vehicles production in August looks tied at least in part to business spending. Output of business equipment rose 1.2% in August, with the biggest gain coming from transportation equipment. Production for this market has increased at a whopping 16.4% clip over the past three months. That bodes well for our call that business investment will increase at a solid rate again this quarter. We look for real equipment spending to grow at roughly a 7% pace in the third quarter. However, headwinds for the sector are reemerging. The rebound in the dollar this year, higher interest rates and ongoing trade tensions are likely to weigh on activity in the coming months. Therefore, we see equipment investment moderating to around a 5% clip over the next few quarters.”

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