Today’s manufacturing numbers have a bit of déjà vu to them, with industrial production up at the same time that business conditions in the New York region continues to contract.
First, the Federal Reserve reported that industrial production rose 0.2 percent in September, with the August figures revised to indicate that there was no change last month. The numbers in August had previously been reported to be up 0.2 percent. For the manufacturing sector, production rose 0.4 percent in September, building on the 0.7 percent and 0.3 percent increases in July and August. Year-over-year growth in manufacturing production is nearly 4 percent.
Meanwhile, manufacturers’ capacity utilization increased 0.1 percent, from 77.3 in August to 77.4 in September.
Examining the different sectors, the picture is more mixed. Eleven of the sectors experienced gains in production, and eight had declines. Durable and nondurable goods production were up 0.6 percent and 0.2 percent. The sectors with the greatest increases were: wood products (up 2.4 percent), aerospace and miscellaneous transportation (up 2.3 percent), electrical equipment and appliances (up 1.3 percent), paper (up 1.1 percent) and computer and electrical products (up 1 percent). The largest declines were in furniture and related products (down 2.2 percent), apparel and leather (down 1.2 percent) and nonmetallic mineral products (down 0.9 percent).
Overall, these numbers show that manufacturing has experienced reasonable growth in the third quarter of 2011. Manufacturing industrial production is 1.4 percent higher in September than in June (or 5.75 percent at an annual growth rate). That is impressive, and a sign that the sector is starting to improve after a weak second quarter. The durable goods sectors have helped to add significantly to those totals. Moving forward, it will be important for these numbers to continue this growth.
At the same time, regional surveys of manufacturing production – especially those on the East coast – continue to show weaknesses. The Federal Reserve Bank of New York released an update to its Empire State Manufacturing Survey, with overall manufacturing activity still contracting. The index for general business conditions moved from -8.8 in September to -8.5 in October. This was the fifth consecutive month of declining business conditions.
Aside from the top-line figure, however, there were some encouraging signs. Measures for new orders, shipments and employment moved from negative to positive this month. This suggests that growth in these categories has stopped falling and are now either neutral or slowly growing. Inventories and the average employee workweek continued to decline. Pricing pressures eased somewhat but remain elevated.
Looking ahead six months, manufacturers in the New York region remain positive about new orders, shipments, employment and capital expenditures. On the jobs front, the index for the number of employees increased from zero last month (indicating no change) to 6.74 now, suggesting improved hiring expectations for the industry.
So, while the industrial production and Empire State survey appear to be in conflict, I see them as a hopeful sign. There has been a disconnect between official statistics and opinion surveys for some time in the manufacturing sector, and even as this continues in the New York region, there appears to be some progress in terms of changing sentiment.
Chad Moutray is Chief Economist, National Association of Manufacturers.
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