Peter Newland

Industrial production rose 1.0% in July, above our (0.7%) and the consensus (0.5%) forecast. The core manufacturing component was up 1.1%, also above our forecast (0.8%) and more than offsetting the 0.5% decline in June.

The rebound was driven partly by the auto component, which jumped 9.9%, in turn related to the fact that General Motors maintained production at plants they had previously closed for maintenance during July.

However, this was not the full story: manufacturing excluding autos rose 0.6%, with gains in other durable components including metals (1.5%) and machinery (1.1%) and in nondurables such as textiles (2.7%) and chemicals (0.6%). Categorized by market group, there were gains across consumer goods (1.0%), business equipment (1.8%) and business materials (0.9%).

All in all, this represents an encouraging start to Q3; even with no growth in August or September, industrial production would be up 5.7% q/q (saar) in the quarter as a whole, relative to 6.7% in Q2. Strength in durable and nondurable manufacturing supports our view that business investment will remain strong in Q3 and that the boost to GDP growth from inventory accumulation could rebound, having eased in Q2.

source: BarCap