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Industrial production beat expectations

Space and defense output rose for the fifth month in a row. 

October 17, 2023

Industrial production rose 0.3% in September, outpacing expectations for no change. That follows a downwardly revised "no change" in August versus the previously reported +0.4%.

Manufacturing output rose by 0.4% in September, lifted by the production of motor vehicles and parts, up 0.3%. Vehicle production could have been higher. The Federal Reserve cited in its release that motor vehicle assemblies were held down by the ongoing strike against three automakers. It’s important to note that the UAW's strategy is really different this time via targeted strike actions, which has resulted in fewer spillover effects.

Utility output fell 0.3% in September after outsized gains earlier in the quarter, up 4.7% in July due to above-norm, scorching temperatures, which greatly increased cooling needs for households and businesses.

Mining output increased 0.4% in September as crude breakeven oil prices improved with rising crude prices. West Texas Intermediate crude prices averaged near $90 per barrel for September versus $81 in August, providing an incentive to drill for producers.

Defense and space equipment output rose 1% in September, the fifth consecutive monthly gain of 1% or higher, and a sign of the times given rising geopolitical uncertainty. On an annual basis, this category rose 8.7% in September, the highest amongst all market groups and considerably larger than the 0.1% annual rise for overall industrial output.

Information processing output took a breather, declining 0.6% in September, the more inventory building occurred in the third quarter, boosting our estimate for real GDP growth to 5.7%, an astonishing performance for the economy. However, given the sharp rise in bond yields in response to firm growth and inflation data, the U.S. Treasury 10-year bond now yields 4.85%. The rebound in bond yields offsets the recent flight-to-quality bid that drove the 10-year down to near 4.50% due to rising geopolitical risks. 

We see another hawkish pause by the Fed.

Bottom Line:

The tightening of market credit conditions effectively acts like a rate hike by the Federal Reserve. We see another hawkish pause by the Fed at the upcoming November meeting.

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Meet our team

Image of Kenneth Kim
Kenneth Kim
Senior Economist, KPMG Economics, KPMG US

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