Courtesy of Mish.
Following the rebound in consumer spending (heavily weighted to subprime auto sales), economists expected a rebound in Industrial Production.
Instead, last month was revised lower, and this month was not only negative but also lower than any economist's estimate in the Bloomberg Econoday Consensus Range.
The hawks may have some good arguments at this week's FOMC meeting but they won't have anything convincing to say on the manufacturing sector which, instead of rebounding from a weak first quarter, appears to be slowing further. All the main numbers in today's industrial production report are below low-end forecasts with the headline at minus 0.2 in May and April revised 2 tenths lower to minus 0.5. May is the fourth negative reading in the last six months with the other readings at no change. Capacity utilization fell 2 tenths to 78.1 percent which is the lowest rate since January 2014.
The manufacturing component fell 0.2 percent in May for the third negative reading in five months. Weakness in May was concentrated in consumer goods and construction supplies, the latter a disappointing indication for the housing sector. The mining component, at minus 0.3 percent, has really been hit hard by weakness in the energy sector but, in a plus, contraction here seems to be easing. The utilities component is positive but just barely at plus 0.2 percent.
Turning back to manufacturing, vehicles are actually a very big positive with a third outsized gain in a row, at plus 1.7 percent in May vs 2.0 percent and 4.0 percent in the two prior months. This reflects very strong consumer demand for cars and trucks underscoring unit vehicle sales which, in previously released data, are the strongest in 10 years. Excluding vehicles, however, the decline in May manufacturing slips another tenth to minus 0.3 percent. Another area of strength is capital goods which is showing life in the durable goods report and which here, tracked in the business equipment subcomponent, shows a 0.2 percent gain for May.
Otherwise, however, this report is surprisingly weak and echoes this morning's equally surprisingly weak Empire State report for June. Though there are no separate readings on exports in either of this morning's reports, weakness here appears to be pulling down the manufacturing sector.
Revisions
The Fed's Industrial Production and Capacity Utilization report shows there has not been a positive report all year, but December 2014, February and March 2015 were revised from negative numbers to zero. January and April were revised lower from previously reported negative numbers.
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Market Groups
Among the major market groups, only business equipment and business supplies registered production gains in May, with increases of 0.2 percent and 0.1 percent, respectively. The production of consumer goods decreased 0.3 percent, as declines for both consumer energy…
