U.S. industrial production surged by 1.1 percent in November, the biggest gain in exactly a year, according to the latest Federal Reserve report. The jump in output, along with other improving economic indicators such as employment and consumer spending, suggests that the U.S. economy is now on more solid footing for sustained growth.
Industrial capacity utilization jumped from October’s 78.2 to an even 79. The Fed’s industrial production and capacity utilization results beat economists’ predictions of a 0.6 percent expansion and a 78.5 percent rate, respectively. Year-over-year industrial output was 3.2 percent higher.
Manufacturing output, the largest component of domestic industrial production, last month rose 0.6 percent, expanding for the fourth straight month. November’s year-over-year output was 2.9 percent higher but still 3.6 percent lower than its pre-recession peak. Manufacturing capacity utilization rose 0.4 percent to 76.8, but it is still below the 78.7 long-run (1972–2012) average.
The production of consumer goods expanded by 1.5 percent in November, propelled by gains in automotive products (3.3 percent) and home electronics (2.6 percent). Business equipment output, however, fell by 0.5 percent, dragged down by contractions in information processing equipment (-1.8 percent) and industrial equipment (-0.6 percent).
Production of aerospace and miscellaneous transportation equipment was down by 0.2 percent, as were machinery and computer and electronic products.
Nondurables output as a whole rose 0.5 percent, led by textile and product mills with a 1.7 percent gain and 0.9 percent expansions in both chemicals and petroleum and coal products.
Industrial production had edged up 0.1 percent in October after having increased 0.7 percent in September. Manufacturing production continued to tick up steadily when considering October’s 0.3 percent gain. The change in capacity utilization returned to positive territory in November after a decline in October.
As well, the mining and utilities indexes returned to positive territory. There was a big jump in utilities output (3.9 percent), and mining output was a robust 1.7 percent higher versus October.
Machining Industry Posts Healthy Equipment Investment in October
The domestic machining industry, a vital cog in aerospace and automotive production, opened up its purse strings for equipment purchases in October. U.S. cutting tool consumption for the month totaled $176 million, representing a 13.1 percent jump versus September, and orders for metal cutting and production equipment were up by 10.2 percent. The data were reported by McLean, Va.-based trade group AMT – The Association For Manufacturing Technology.
Cutting tools are consumables that metalworking job shops and machine shops need to acquire and replace frequently in their production processes. Cutting tool purchasing levels and supplier shipments therefore represent a good, short-term manufacturing barometer. AMT works with the United States Cutting Tool Institute (USCTI) to track activity for a monthly report said to account for 80 percent of the U.S. cutting tool market.
Although the Commerce Department last week reported that October orders for aircraft and aerospace products swooned, demand for automobiles is healthy, and manufacturers are still working through order backlogs that have crept up over the past few months.
Tom Haag, USCTI’s president, noted, “While cutting tool sales enjoyed their best month since April, the trend is still behind for 2013 compared to 2012. The important indicators show the automobile and aerospace industries are forecast for stable and steady growth in 2014, so we are optimistic.”
October year-to-date tool shipments totaled $1.68 billion, which is down 6.6 percent compared to the same period in 2012. October’s year-over-year figure was 5.8 percent lower.
Orders for CNC machine tools and associated production and automation equipment, which AMT lumps together as “manufacturing technology,” totaled $435 million in October. The year-to-date total for manufacturing technology orders is roughly $3.94 billion, which is 10.6 percent lower than 2012′s pace. But the double-digit jump from September was encouraging news for AMT President Doug Woods.
“October’s order growth, combined with the latest [purchasing managers index] reading, is added reinforcement that manufacturing is continuing its positive trend,” he said. “We expect more good news headed into 2014, especially as domestic energy costs continue to drop and as key industry segments show solid growth, particularly automotive.”
The month’s growth rode a strong performance in the Northeast region, where orders were up nearly 17 percent over September and over 12 percent versus October last year. The region’s year-to-date total is also pacing ahead of 2012 by 2.1 percent.
Equipment Finance Companies Feel More Confident About Early ’14
U.S. companies will seek more leases and loans to acquire capital equipment over the next few months, based on the sentiments of equipment financing companies that were polled last month.
The Equipment Leasing & Finance Foundation’s Monthly Confidence Index (called the MCI-EFI) ratcheted up by almost three points to 56.9 in November. Behind the jump in this leading indicator of business activity was a 6.4 percent leap among surveyed banks, financial services companies, and independent leasing and finance companies that said demand for equipment leases and loans will increase through the first quarter of 2014.
There was also a similar corresponding jump among executives at these organizations who expect business conditions over the next four months will improve (17.2 percent in November versus 11 percent in October). Access to capital will open up during this same period, said 24 percent of financing company executives, a rise of 5.5 percent. And the percentage of November survey respondents polled by the foundation who expect U.S. economic conditions will get better over the next six months leaped by 17.2 percent from zero in October.
At the highest levels of the equipment finance industry, however, forward-looking views among mixed.
“Demand (for capital equipment loans and leases) has increased slightly as the end-of-the-year push for transaction closings is in process,” said Valerie Hayes Jester, president of Brandywine Capital Associates. “We would believe that demand will remain at lower levels until issues regarding the budget crisis and healthcare insurance are fully resolved.”
Thomas Jaschik, president of BB&T Equipment Finance, said there has been a “downward trend since the beginning of the second quarter, in tandem with the general direction of the economy and investment in capital equipment. With no real leadership in Washington, this lackluster performance is likely to continue for the foreseeable future.”
But Harry Kaplun, president of Frost Equipment Leasing and Finance, said, “We are starting to see some slowdown in several sectors, but growth is still happening.”
The foundation is an affiliate of the Equipment Leasing and Finance Association. Seventy-two percent of U.S. companies use some form of financing when acquiring equipment, and $827 billion of the $1.28 trillion used for capital goods and software each year is financed, according to ELFA.
November Retail Sales Numbers Show Robust Big-Ticket Purchases
Generally better employment conditions in the country, as reported here last week, may be leading to greater consumer spending, which drives roughly 70 percent of the U.S. economy. Retail sales in November, as reported by the Commerce Department, rose by 0.6 percent, the biggest gain in half a year.
Of the $432.3 billion in purchases for the month, Americans went mainly after big-ticket items. Auto sales rose by 1.8 percent over October, while sales at furniture and home furnishing stores were up 1.2 percent. Home improvement sales and consumer purchases of electronics and appliances also trended up, by 1.8 and 1.1 percent, respectively. The month’s retail volume was 4.6 percent more than that of the previous November.
“Consumers who have money are spending and spending big,” Diane Swonk, chief economist at Mesirow Financial, told Associated Press.
Meanwhile, initial unemployment claims for the week ending Dec. 7 jumped by 68,000 from the previous week’s adjusted figure of 300,000, reversing the momentum of the previous two weeks. The four-week moving average jumped by 6,000 to 328,750.
Detailed data in the Labor Department’s latest weekly jobless report show that manufacturing and industrial layoffs decelerated in South Carolina, Florida, and Pennsylvania while Ohio, New Jersey, and Massachusetts saw increases in layoffs.
