Industrial production increased for the third successive month in August, per data from the Federal Reserve. A jump in utility output and robust motor vehicle production were the primary catalysts to the month’s gains. Following this report, industrial production seems to be on track to register its best annual growth numbers since 2010.
Some analysts have pointed to the fact that growth in industrial production declined in the last two months. They believe that a strong dollar and trade tensions with China are inhibiting the growth of U.S. factories.
However, other indicators, such as the ISM manufacturing index indicate that the sector is in fine fettle. Investing in utility and auto stocks, which largely powered last month’s growth, looks like a smart option at this point.
Utilities, Autos Power August’s Gains
Industrial production, a gauge of mining, utility and factory output, increased at a seasonally adjusted pace of 0.4% in August. This is marginally higher than the estimated level of 0.3%. Utilities output advanced 1.2%, acting as one of the primary catalysts for the increase in overall output. Warmer temperatures led to a step up in electricity usage and consequently, production.
Meanwhile, a 4% increase in motor vehicles and parts production was solely responsible for the 0.2% increase in manufacturing output. In August, U.S. automakers assembled vehicles at an annual rate of 11.5 million units, the sharpest pace since April. Mining output increased 0.7% in August.
Can Stronger Dollar, Trade Tensions Impede Future Gains?
Over the past 12 months, industrial production has increased by 4.9%. The metric is now on track to register its best annual increase since 2010. That year, industrial production increased 5.5% as the economy started to recover from the Great Recession. In August, capacity utilization increased from 77.9% to 78.1%.
Despite August’s favorable reading, a section of economists point to the fact that factory production has declined over the past two months. Trade tensions with various countries may have impeded growth. However, others believe that Trump’s protectionist stance is actually aiding U.S. manufacturers.
