INDUSTRIAL PRODUCTION UNEXPECTEDLY ACCELERATES

September U.S. industrial production data are out.

Total production rose 0.6% in September. Economists predicted an unchanged pace of growth from August’s 0.4% clip.

Capacity utilization rose to 78.3% from an upward-revised 77.9%, exceeding economists’ predictions for a smaller rise to 78.0%. That’s the highest level since July 2008.

Manufacturing production growth, however, slowed to 0.1% in September (economists predicted a 0.3% advance). August manufacturing production growth was revised down to 0.5% from 0.7%.

Production of automotive products was up 12.9% from a year earlier in September, while textile production was down 5.4% year over year.

Below is a breakdown of the data from the release:

The production of consumer goods increased 0.8 per cent in September but declined at an annual rate of 1.1 per cent for the third quarter as a whole. The index for durable consumer goods advanced 0.7 per cent in September, as a gain in the output of automotive products more than offset declines in the production of home electronics; appliances, furniture, and carpeting; and miscellaneous goods. The output of durable consumer goods increased at an annual rate of 2.1 per cent for the third quarter as a whole. The production of nondurables rose 0.9 per cent in September. The increase was driven by a gain in the output of energy products, which moved up 3.9 per cent, while the output of non-energy nondurables decreased 0.2 per cent, a third consecutive monthly decline. Within non-energy nondurables, the indexes for foods and tobacco and for chemicals both declined 0.3 per cent. In contrast, the output of clothing increased 1.6 per cent and was 4.5 per cent above its September 2012 level. The output of nondurable consumer goods decreased at an annual rate of 2.0 per cent for the third quarter as a whole.

The output of business equipment moved up 1.2 per cent in September and increased at an annual rate of 1.2 per cent for the third quarter as a whole. All major categories of business equipment advanced in September. The production of transit equipment increased 2.3 per cent and was 5.5 per cent above its year-earlier level; the output of industrial and other equipment rose 1.2 per cent in September, its first monthly gain since June; and the index for information processing equipment edged up 0.1 per cent in September following an increase of 1.2 per cent in August. The overall index for business equipment in September was 3.7 per cent above its year-earlier level.

The output of defence and space equipment rose 0.4 per cent in September and was 1.8 per cent above its September 2012 level. For the third quarter, the index increased at an annual rate of 4.2 per cent.

Among nonindustrial supplies, the output of construction supplies moved up 0.6 per cent in September, its fourth consecutive monthly increase, and advanced at an annual rate of 4.8 per cent in the third quarter. The production of business supplies rose 0.7 per cent in September.

The output of materials to be processed further in the industrial sector increased 0.3 per cent in September and advanced at an annual rate of 4.2 per cent for the third quarter. The gain in September was due to a 1.0 per cent increase in the production of energy materials. For the third quarter as a whole, the index for energy materials moved up at an annual rate of 7.5 per cent. The output of durable materials was unchanged in September following a gain of 1.2 per cent in August. The production of equipment parts declined 0.2 per cent in September, while the output of consumer parts and of other durable materials both edged up 0.1 per cent. The production of nondurable materials moved down 0.4 per cent in September; the indexes for textile materials and chemical materials both declined, and the index for paper materials was unchanged.

This release was originally scheduled for October 17, but the Federal Reserve postponed it because the report relies on a number of government-released indicators that were delayed due to the government shutdown that spanned the first two weeks of the month.

The data don’t reflect the effects of the government shutdown. However, there have been signs of a slowdown in other measures of the economy prior to October, like nonfarm payrolls and core durable goods orders.

Meanwhile, the first data releases covering the October period affected by the shutdown have been downright ugly. American manufacturing output contracted this month for the first time since September 2009, and consumer confidence plummeted.

Still, Wall Street economists largely expect the American economy to accelerate in early 2014. However, a new “shadow consensus” predicting continued slow growth and monetary easing is beginning to emerge.

Dominic Konstam, global head of rates research at Deutsche Bank, believes the U.S. economy may already be entering into a “late-cycle” stage. One of the major implications for markets is that the Fed may have missed its chance to taper back its quantitative easing program in September.

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