August Industrial Production rose .8%, .2% more than expected and July was revised up a strong .5% to a gain of 1%. Capacity Utilization in response rose to 69.6% from 69% and was .6% more than expected. In terms of the output gap argument keeping a lid on inflation, 80% is the 30 year average. The auto plant ramp up in July and August was the main contributor to the increase in IP as motor vehicle/parts production rose 5.5% in Aug after a huge 20.1% jump in July. Even with these gains, it’s still down 20.2% y/o/y but should continue to improve into year end as auto production still has catching up to do. Auto production added .2% to the .6% gain in manufacturing in Aug and .8% to the 1.4% rise in July. Utility output, machinery and mining production also helped in Aug. This data confirms the theme that manufacturing will be a main contributor to Q3 GDP growth.
Long term net foreign purchases of US assets totaled $15.3b in July, much less than expectations of $60b. After a massive increase in Treasury note/bond purchases in June which totaled a record high of $100b, July saw net buying of $31.1b. After selling $25.1b of US notes and bonds in June, China bought $24.1b in July, taking their holdings to near record highs. Japan, the 2nd largest holder, bought $12.7b worth. Foreigners were sellers of government agency paper by a net $4.6b and were sellers of corporate bonds for a 2nd straight month, by $11.1b. They did buy US stocks by a net $28.6b, the most since Dec ’07. US investors bought almost $29b of foreign bonds and stocks and this subtracts from the net headline figure as the money goes overseas. Net, net, because this is July data and is somewhat dated, the market didn’t respond but the key looking forward is what impact the weak US$ will have on foreign buying of US assets.