US industrial production rose 0.7 per cent in September, the Federal Reserve said Friday — comfortably above the 0.4 per cent economists had forecast and the largest monthly gain since April. But the headline flatters a divided reality: power plants and chip factories did almost all the work, while car makers and traditional manufacturers fell behind.
Utilities output jumped 3.5 per cent, the largest monthly gain in nine months, driven by record warm temperatures that pushed up demand for cooling. Utilities make up about an eighth of industrial output, yet by the Fed’s weights they accounted for roughly 63 per cent of September’s increase. Manufacturing managed only a 0.3 per cent gain. Within it, makers of primary metals, machinery and electrical equipment raised output by 1 per cent or more — while motor vehicle and parts production dropped 3 per cent, the steepest decline in almost a year, as higher financing rates kept buyers away. New auto loan rates reached 7.5 per cent in August for a five-year term.
Chips are the other engine
The data-centre and technology buildout played the starring role alongside utilities. Semiconductor output was 19.9 per cent higher than a year earlier — far outpacing the 2.2 per cent gain for US industry as a whole — and rose at a 28.4 per cent annual rate in the third quarter. Defence and space equipment production climbed 6.2 per cent. Capacity utilisation edged up to 76.9 per cent, but remained 2.5 percentage points below its long-run average, suggesting plenty of slack outside the booming tech and power sectors.
What it means for the Fed
The split complicates the outlook for interest rates. The strong headline supports the case that the economy is withstanding elevated borrowing costs, but the weakness in rate-sensitive industries — autos, housing-exposed categories like furniture — argues the pain is real where credit bites. With the Fed in its blackout period ahead of the October 27-28 meeting, September’s two-speed factory data will sit on the table alongside the hot inflation readings.
