Soft October Industrial Activity Points to a Two-Speed American Economy

Industrial activity was soft in October, posting its second consecutive year-over-year decline. Some of the results can be written off to one-off factors — the residual effects of the General Motors strike that ended mid-month, and a strong comparable for October 2018. 

The economy faced a number of headwinds in September that weighed on industrial production — notably the General Motors strike and a pair of major storms that hit the southeastern United States. Although the declines were particularly large for categories like motor vehicles, the results were weak across the board. Most major industry groups saw the pace of decline accelerate from September. It’s clear that there are a number of longer-term headwinds that still loom over the American economy and American industry continues to retrench. 

October is usually a month when the freight demand shifts away from U.S. farms and factories, and toward U.S. ports — particularly the Pacific Coast ports — as retailers prep for the holiday shopping season. Many importers built up their inventories earlier than normal this year in anticipation of new tariffs, so the pre-holiday bump at Pacific ports has been more muted than is normal. Retail sales, also reported this morning, rebounded after a September slump suggesting that the American economy continues to run at two speeds: The industry sector gearing down while consumers stay revved up in high gear. 

While the freight economy is no longer in a free fall, it has now been a full year since the freight demand peaked and the trucking industry entered recession. Freight rates have stabilized — they are no longer falling at the pace they were earlier this year — but that stabilization has largely been the result of tighter supply. While financial market signals of economic risks such as bond yields and stocks have recently shifted toward a more optimistic outlook, today’s data show that there continues to be very real risks out there to the American economy.

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