US production rebounds in October, back above pre-pandemic level

Summary: US industrial output expands by 1.3% in October, greater than 0.8% expected; up 5.1% over past 12 months rebound “inevitable after Hurricane disruption”; auto production up 11%, manufacturers overcoming raw materials, labour shortages; capacity utilisation rate up 1.2ppt to 76.4%; back above February 2020 figure, still well short of long-term average.

According to the Federal Reserve, US industrial production expanded by 1.6% on a seasonally adjusted basis in October. The result was greater than the 0.8% increase which had been generally expected and in contrast to September’s 1.3% contraction. On an annual basis, the expansion rate accelerated from September’s figure of 4.6% to 5.1%.

“It’s worth noting that a strong rebound was inevitable after Hurricane disruption and the level of manufacturing output is back above its pre-pandemic levels,” said NAB senior economist Tapas Strickland.

US Treasury bond yields moved moderately higher on the day. By the close of business, the 2-year Treasury yield had inched up 1bps to 0.53%, the 10-year yield had added 3bps to 1.65% while the 30-year yield finished 4bps higher at 2.04%.

Strickland noted an “11% bounce-back in auto production”, which may say something about the state of global semi-conductor production. “Even excluding this sector, the increase in production was a healthy 0.6%, with manufacturers overcoming shortages of raw materials and labour constraints.”

The same report includes US capacity utilisation figures which are generally accepted as an indicator of future investment expenditure and/or inflationary pressures. Capacity usage had hit a high for the last business cycle in early 2019 before it began a downtrend which ended with April 2020’s multi-decade low of 64.2%. October’s reading rose from 75.2% to 76.4%, back above February 2020’s reading of 76.3% but still well short of the long-term average of 80.1%.

While the US utilisation rate’s correlation with the US jobless rate is solid, it is not as high as the comparable correlation in Australia.

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