MNI DATA PREVIEW: Analysts Unsure if IP Will Rebound

By Holly Stokes and Sara Haire

HIGHLIGHTS:

-Analysts see +0.2% for industrial production, but unsure if September's

industrial production recovered from August's hurricane driven 0.9% drop.

- Oil and gas extraction is expected to remain a drag on industrial production

considering the high number of petrochemical plants being forced to shut down in

Texas. 

- Utilities could either see a drop due to the effects of the hurricanes, or

rise from the abnormally warm weather in the north. 

- Manufacturing could could either rise or fall, with analysts either pointing

to the strong ISM manufacturing index to indicate a rise, or citing the weak

manufacturing hours worked seen in the September employment report.  

     WASHINGTON (MNI)- Due to uncertainty of hurricane impact, September

industrial production forecasts vary from down 0.9% to up 0.8%, with the median

landing on a 0.2% gain. Capacity Utilization is expected to be 76.2%, roughly

unchanged from August's 76.1%.

     After Hurricane Harvey at the end of August, industrial production and

capacity utilization were just beginning to show the effects of the storm in the

data. 

     Capital Economics claimed Harvey was responsible for the 0.9% decline last

month, and with Irma having furthered the damage in September, they expect

production fell even further. Following the largest drop since the financial

crisis, analysts at CIBC seem to think that production was unable to make up

much ground due to the bad weather conditions. 

     However, other analysts believe that after the severe dip in August,

September will see a partial reversal and a small increase. 

     Dragging industrial production, analysts expect that oil and gas extraction

will fall even further in September as Harvey's disruption continues to be felt.

Analysts also expect mining to give little support to the index due to the

decline in the rig count. While much of the hurricanes' impact is assumed to

have abated, Capital Economics notes that due to the severe drag at the start of

September, even a recovery at the end of the month would not sufficiently pull

up the average.

     Forecasts for utilities vary, with analysts pointing to contrasting

indicators. Analysts such as BMO and Barclays expect that power outages from

Irma suppressed utilities and will hold IP down. 

     However, other analysts believe that the Northeast's unseasonably warm

weather will counteract Irma's drag. Societe Generale argues that due to

August's large drop in utilities, a rebound can be expected - explaining that

even though Edison Electric showed a 4.1% drop year over year in electricity

output, that this would translate into a 2.0% monthly increase for utilities. 

     Analysts also differ in their expectations for manufacturing output. Morgan

Stanley believes that given the decline in factory hours worked in September's

employment report, that August's weak manufacturing will continue. However, many

other analysts predict a healthy rise in manufacturing, citing the increase in

September's ISM Manufacturing Index. 

     While a recovery in September's report remains uncertain, analysts agree on

a strong rebound for October, and that like so many of August and September data

reports, markets should discount irregularities caused by one-off events such as

the hurricanes.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

[TOPICS: MAUPR$,M$U$$$]