US: Core industrial production remains healthy but autos raise concerns - Nomura

US industrial production rose 0.2% m-o-m in July, below consensus (Nomura: 0.4%, Consensus: 0.3%), following a 0.4% increase in June while some of the downside miss can be attributed to a greater-than-expected decline in autos and auto parts output according to analysts at Nomura.

Key Quotes

“This category fell 3.6% as automakers adjusted their production in the face of increasing inventories amid slowing sales, creating a 0.2pp drag to headline industrial production.”

“Excluding motor vehicles and parts, core manufacturing output increased 0.2%, suggesting a steady pace of activity in the manufacturing sector. Core manufacturing output for June was revised upwards by 0.2pp to 0.3%, indicating some firming of core output growth.”

“It is possible that some of the decline in auto and auto parts output in July was due to a transitory pause for retooling. Anecdotal evidence indicates that the seasonal shutdown of auto production facilities for retooling may have been longer than usual this year. The drop in auto production in July (32.7%) on a non-seasonally adjusted basis was greater than the drops in the same month in previous years. This unusual drop may have confounded seasonal factors (which were similar between 2016 and 2017).”

“GDP tracking update: Yesterdays’ industrial production data lowered our Q3 GDP tracking estimate 0.1pp to 2.9% q-o-q saar. While energy output, a proxy of household energy consumption, increased solidly in July, vehicle assemblies came in weaker than expected, suggesting less inventory building of vehicles. On net, the relevant elements of industrial production report were negative to Q3 GDP.”