Article / 17 October 2016 at 5:07 GMT

3 Numbers: US industrial output to rebound modestly for September

editor/analyst /
United States
  • New York Fed manufacturing index is on track to return to positive for October 
  • US industrial activity is projected to post a modest increase in September 
  • Will the 10-year Treasury yield keep rising after Yellen’s dovish inflation speech?

By James Picerno

Industrial production for the US is in focus today with the government’s report for September on tap. We’ll also see October sentiment numbers for manufacturing via the New York Fed’s survey data. Meanwhile, keep an eye on the 10-year Treasury yield, which increased to a four-month high on Friday after Fed Chair Janet Yellen’s dovish speech on inflation.

 The crowd's looking for a negative 0.7% year-over-year decline in US industrial activity, quite a bit better than August’s 1.1% slide. Photo: iStock

US: NY Fed Manufacturing Index (1230 GMT) Last week’s news on the consumer sector was mixed. Will today’s preliminary look at manufacturing activity in October deliver firmer data that supports expectations the Federal Reserve will raise interest rates by the end of the year?

Friday’s update on retail spending offered an optimistic spin via a solid rebound in sales. Purchases climbed 0.6% last month, the biggest monthly advance since June. But consumer sentiment sagged in October, according to The University of Michigan (UoM) preliminary estimate. But the slide may be a function of election anxiety.

“It is likely that the uncertainty surrounding the presidential election had a negative impact [on sentiment], especially among lower-income consumers, and without that added uncertainty, the confidence measures may not have weakened,” said Richard Curtin, director of the UoM’s survey.

Meanwhile, sentiment in the manufacturing sector revived in September. The ISM Manufacturing Index, after turning (mildly) negative in August for the first time since February, rebounded to a growth reading (above 50) last month.

There’s also a whiff of recovery in the September data for five Federal Reserve bank sentiment indices that track the sector. Today’s first look at the October profile via the New York Fed is expected to tip the scales upward as well.’s consensus forecast sees the index rising to 1.0, the first positive reading in three months.

US: Industrial Production (1315 GMT) The hard data on industrial output revealed a reversal of fortunes for August. After posting gains in June and July — the first back-to-back advances in a year — production fell sharply.

The setback could be noise, but the year-over-year trend turned darker too. Output fell 1.1%, the steepest decline in three months. Industrial activity’s annual pace has been consistently negative for 11 months.

A key headwind: sluggish conditions in manufacturing, the dominant component for industrial activity. IHS Markit’s chief economist noted earlier this month that “manufacturing growth slowed to a crawl in September, suggesting the economy is stuck in a soft-patch amid widespread uncertainty in the lead-up to the presidential election.”

But the crowd’s looking for a kinder, gentler profile in today’s hard data on industrial activity.’s consensus forecast calls for a modest rebound in the monthly comparison: 0.2% growth, which translates to a negative 0.7% year-over-year decline for September, quite a bit better than August’s 1.1% slide vs. the year earlier. Nonetheless, the annual trend in output is still headed for the 12th straight month of year-over-year red ink.

US: 10-Year Treasury Yield The 10-year Treasury yield ticked up to a four-month high at last week’s close. The higher rate for the benchmark government bond was triggered by comments from Fed Chair Janet Yellen, who intimated in a speech on Friday that letting the economy run hotter for longer may be necessary to revive growth.

Speaking at a conference in Boston, Yellen pondered the case for repairing the lingering damage from the Great Recession “by temporarily running a 'high-pressure economy' with robust aggregate demand and a tight labour market”. The remarks were widely interpreted as a sign that the central bank may be willing to tolerate higher inflation above the Fed’s 2.0% target going forward.

Not surprisingly, the Treasury market’s implied inflation forecast via the 10-year maturity jumped to 1.67% on Friday, the highest since May (based on the yield spread between the nominal and inflation-indexed 10-year notes via daily data from

“If you look at the [Treasury] curve, it’s clearly telling you that the market believes that it’s a dovish tilt, wanting the economy to run hotter, allowing rates to stay low for longer and to produce inflation,” said the head of Treasury trading at Bank of Nova Scotia, a primary dealer for US government bonds.

Yellen’s comments also opened the door (again) for expecting that interest rates will remain lower for longer. Reacting to the speech, the policy sensitive 2-year Treasury yield slipped on Friday to 0.84%, suggesting that the market may be rethinking the case for expecting a rate hike in December.

The question is whether Friday’s divergence — a rising 10-year yield and a decline in the 2-year —will continue this week?

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– Edited by Susan McDonald

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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