LIVE MARKETS-Data double-dip: Industrial production, import prices

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DATA DOUBLE-DIP: INDUSTRIAL PRODUCTION, IMPORT PRICES

Investors were treated to two economic indicators on Friday, capping a week chock-full of them. And both arrived hotter than economists anticipated.

First, industrial output USIP=ECI grew by 0.7% last month, marking a solid acceleration from August's 0.1% growth and coming in stronger than the 0.4% analysts expected.

Manufacturing output growth rebounded from the previous month's 0.2% decline, rising 0.3%, in line with consensus.

Beneath the surface, the 3.0% drop in motor vehicles/parts was offset by a 3.5% surge in utilities and a 1.0% rise in construction supplies. A 1.5% increase in high-tech output suggests AI-related demand isn't going anywhere. Excluding high-tech, output rose 0.6%.

Year-on-year, industrial output has risen 2.2%.

Capacity utilization USCAPU=ECI, a measure of economic slack, tightened by half a percentage point to 76.9%, the highest since December 2023.

"The AI-capex boom probably will continue to lift output in a few tech-adjacent industries, but other manufacturing sectors will remain sluggish," writes Oliver Allen, senior US economist at Pantheon Macroeconomics. "A continued gradual recovery in manufacturing, rather than a boom, is likely in the months ahead."

Separately, the cost of goods imported to the United States USIMP=ECI (excluding tariffs) jumped by 1.1% last month, per Labor Department data, hotter than the 0.9% economists predicted and more than double August's 0.5% increase.

Digging deeper, a 4.6% rise in imported petroleum prices and a 2.7% increase in industrial supplies put upward pressure on the headline. Year-on-year, prices of imported petroleum and industrial supplies have risen 35.4% and 20.4%, respectively.

Meanwhile, the cost of US exports rose 2.2% versus the 1.1% consensus, driven by a 4.0% pop in industrial supplies and a 2.7% increase in food/feed/drinks.

Year-over-year, import prices have jumped 8.1%, and export prices have surged 11.6%.

It's the third indicator released this week — following CPI and PPI — to show the extent to which energy price pressures arising from the Iran war are morphing into a broader, more systemic inflation.

As a result, markets are recalibrating their expectations regarding central bank monetary policy.

"We're looking for inflation to accelerate in the near term but not plateau at a higher level,” writes Oren Klachkin, financial market economist at Nationwide. “The heated near-term increases will give way to tamer readings down the road in 2027."

"That said, the risk is inflation remains higher for longer than we expect and is more difficult for the Fed to vanquish."

(Stephen Culp)

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