KEY DATA: IP: +0.3%; Manufacturing: +0.1%/ Import Prices: +0.7%; Fuel: +3.9%; Export Prices: +0.8%; Farm: -0.7%

IN A NUTSHELL: “Some say manufacturing is rebounding, but output is still lagging.”

WHAT IT MEANS: If you look at the surveys from the regional Federal Reserve banks and the national and local associations, you would think that manufacturing is booming. But according the Federal Reserve Board, output really is going nowhere. Industrial production rose solidly in September, led by a rebound in utilities and mining. But manufacturing production hardly budged. For the quarter, manufacturing output fell, not a sign of a strong sector, hurricanes notwithstanding. There were some really wide variations in activity. For example, the vehicle sector responded to the need to replace all those hurricane-soaked vehicles and assembly rates improved. But the rise wasn’t huge as a number of makers had excess inventory that they managed to unload. There were some really good increases in a variety of other durable goods industries, including machinery, electrical equipment and appliances, metals, computers and wood products. On the other hand, most categories in the nondurable segment slowed production. This included petroleum, chemicals, apparel and printing. That weakness almost totally offset the strength in durables and it cannot be blamed strictly on hurricanes.

On the inflation front, import prices surged in September led by a jump in energy costs. Let’s hear it for hurricanes that didn’t touch the rest of the world but led to price increases anyway. But the increase in the cost of foreign products was not just due to the spike in petroleum. Food prices soared and vehicle and capital goods costs moved upward, though modestly. On the export side, petroleum led the way but the wild swings in agricultural export prices continued. In September, they were in the down side of the yo-yo.

MARKETS AND FED POLICY IMPLICATIONS: The debate continues over whether the Fed will raise rates one more time this year, likely in December. I say think will and I hope to earn my second cheesesteak in two years. Different person, but hopefully same outcome. The economy is in decent shape and it looks like third quarter growth could come in somewhere around 2.5%. If it is less than that it was likely due to a swing in vehicle inventories as hurricane replacements were pretty high in September. It will be interesting to see what happens with wages in the two reports we will get before the December meeting. While Fed members, and most everyone else, are baffled by the modest rise in wages and tame inflation, it is beginning to look like there may be a bit of a wage break out starting. The GDP report, when coupled with what is likely to be seen as some modest acceleration in inflation should provide ample support for Janet Yellen to go out with a bang – or a rate hike. The increase would happen even if she is not reappointed, which looks doubtful. Fed Chairs usually only consider not participating at their very last meeting. That is probably January 30-31, 2018.