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Industrial production declined 0.2 percent in September—the first monthly decrease since the recession ended in June of 2009. Utilities output dropped 1.9 percent and manufacturing production gave up 0.2 percent.

Mostly Unexpected Dip, Slow Growth Ahead

• Given the expansionary numbers we have seen in the ISM report in recent months, the decline in production comes as something of a surprise. However, the small decline in average weekly hours worked in the factory sector from the employment report did provide some clue that things could deteriorate somewhat. We still expect to see slower growth rather than outright declines in output for the fourth quarter.

Utilities, Manufacturing Output Both Down

• Utilities output fell 1.9 percent, but it only comprises 12 percent of total output. Manufacturing production makes up roughly three quarters of total output, and that measure showed a decline of 0.2 percent on the month.
• Capacity utilization fell slightly from an upwardly revised August level. There remains plenty of capacity in the system and at present levels there is little concern for inflationary pressure.

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On Tap This Week: Fed Speakers and Data on Manufacturing and Housing

The US data focuses on 2 key themes. The first is a slew of Federal Reserve Officials giving speeches. The data that is on tap this week will have to share the spotlight. On the data front, we get a look into manufacturing and housing. These are two key sectors and are on the mind of FOMC policy makers. While manufacturing helped spearhead the recovery, activity and job gains have cooled. Meanwhile, the housing market hit a rough patch following the end of the expiration of the government’s home-buyer tax credit.

The next important date for the US calendar will be the Fed’s Nov. 2-3 meeting. With the amount of Fed speakers on tap before then, it seems likely that the Fed will clarify the criteria that will trigger more easing, and perhaps offer some clues as to the size and scope of purchases.



Mid-Week: Fed Officials Make the Rounds and Beige Book

Tue 10AM FOMC Member Dudley – Due to speak at the Regional economic briefing, in New York.

7PM FOMC Member Duke – Due to speak at the Money Marketeers Club, in New York.

Wed 2PM Beige Book

Thu 2PM FOMC Member Bullard – Due to speak on the US economic outlook and monetary policy at the Federal Reserve Bank, in St Louis.

9:45PM FOMC Member Hoenig Speaks – Due to speak about the US economic outlook at the business and community leaders conference, in Albuquerque.

This week we have 4 member of the FOMC taking to the podiums and their comments will set the tone for the week as they embark on the messaging of more quantitative easing, and what triggers are needed for the FOMC to start more quantitative easing come Nov. 3rd. In addition to official speeches, the Fed will release its Beige Book on Wednesday. This compilation of anecdotal economic data is being prepared in advance of the November policy meeting, so this will be the most up to date information that the FOMC will be basing their decision.

Manufacturing – Industrial Production and Philly Fed Survey

On Monday, the Fed itself will report on industrial production and capacity for September. This indicators gives measures the output from the nation’s manufacturers, mines and utilities. The consensus is for a 0.2% rise, matching the gain seen in August. The capacity utilization rate – or the percentage of factories in use – is projected to edge up to 74.8% from 74.7%.



Here’s a look at the year-over-year change courtesy of tradingeconomics.com and we can see the sharp slide as the US fell into recession, and the healthy rebound and gains during 2010. However, now the pace of growth is slowing, as manufacturers more closely align their inventories to sales and the ratio between the two has more or less normalized.

In a second look at manufacturing, we get the Philadelphia Fed survey, a leading indicator as it measures October. Expectations are for the general conditions index to improve to 0.5 from -0.7 in September. The NY Empire index, which was released last week on Friday, was unexpectedly strong 15.7 (expectations had been a climb to 7.1 from September’s 4.1).

I wonder if the decline of the Dollar will show up in manufacturing data soon, as a weaker greenback can help spur exports growth.

Housing – Starts

Tuesday brings data on housing, a look at demand for new homes in the form of housing starts. The median forecast is for starts to fall 3.2% to an annual rate of 579K during September, after starts had jumped 10.5% in August. Building permits are projected to rise 1.2% to 578K.



The pace of new housing starts has been bouncing along the bottom since February 2009. While last month saw a decent bounce back of 10%, we are working from very depressed levels. So, while things may not be getting worse, we’ll see if the pace of starts falls back again in September.

A second report on housing, provided by the National Association of Home Builders, will give us a look at confidence of home builders. The housing market index for October is expected to edge up to 14 this month from a very low reading of 13 in September. This is a leading indicator compared to the housing starts data, and will actually come out first on Monday.

Our Weekly Look at Jobs

Another key data point will be Thursday’s weekly jobless claims because it will cover the pay period for the October employment report. Economists expect claims for the Oct. 16 week to total 455,000, not low enough to suggest strong hiring in October.



Claims have hovered between 450K and 490K for almost a year, but are now in the lower part of the range. Still until claims get below 450K we are not going to see the unemployment rate coming down.

International Trading

Czech Republic

International Trading

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