The following is an analysis from Cliff Waldman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the industrial production report for October 2012.  

“Mostly due to the impact of Hurricane Sandy, U.S. industrial production contracted by 0.4 percent in October,” noted Waldman. “As the devastating storm pummeled the industry-heavy Northeast, manufacturing was disproportionately affected, contracting by 0.9 percent. The breadth of the decline was large, with consumer goods output falling by 0.9 percent and business equipment output contracting by 1.2 percent. In durable goods manufacturing, machinery output was especially affected, falling by 1.9 percent, and electronic equipment output contracted by 1.4 percent. Food and beverage, as well as apparel, were the sectors most impacted on the nondurables side of manufacturing.  As with other natural disasters, it will take some months for the data to return to a status where the storm will not be a factor and it will be difficult to assess the directions of these sectors through the balance of this year.

“The Federal Reserve notes that excluding storm-related impacts, factory output was roughly unchanged from September, a further sign that the significant weakening in manufacturing output growth seen in the second and third quarters of 2012 remains an unfortunate reality into the fourth quarter,” Waldman added “The key drivers of demand for U.S. manufactured goods have all been compromised by negative economic forces. U.S. export growth, which had been slowing, actually contracted during the third quarter as a number of regional challenges have significantly weakened global demand for U.S. goods. Further, the growth of U.S. equipment and software demand, which had also been slowing, stalled completely during the third quarter with economic and policy fears acting as disincentives to capital investment. 

“In the immediate aftermath of the 2008-2009 U.S. recession the manufacturing sector was a key catalyst of the otherwise tepid rebound,” he said. “The factory sector is now being negatively impacted by a troubled global economy and by U.S. policy uncertainty.  Over the short term U.S. manufacturing will most likely grow at a sluggish pace. In a world full of troubles, however, something worse cannot be ruled out for U.S. factories.”