Key Highlights

● September industrial production rose more than expected, reaching its highest level since 2018.

● Utility output jumped sharply, and mining output edged higher.

● Factory capacity utilization also topped the consensus estimate.

● Alcoa beat third-quarter earnings estimates, though its revenue of $3.7 billion missed.

A strong reading

Industrial production rose more than economists expected in September, according to data released Friday. The gain was well above the consensus forecast and a clear acceleration from August's small rise. Market reports said industrial output jumped by the most since April, reaching its highest level since 2018.

Industrial production measures the output of the nation's factories, mines and utilities. It is a key gauge of the goods side of the economy and is closely watched by investors in industrial and materials stocks.

What drove the gain

Utilities were a big contributor. Utility output jumped sharply in September, while mining output edged higher. Utility output often swings with weather, but power demand has also been rising as data centers for AI consume growing amounts of electricity.

That theme showed up in corporate news on Friday. NiSource (NYSE:NI) signed a long-term energy agreement with Microsoft (NASDAQ:MSFT) for its northwest Indiana campus, with expected customer savings at its NIPSCO unit of about $1.75 billion. Utilities were among Friday's best-performing sectors.

Factory capacity utilization also topped the consensus estimate, a sign that plants are running busier.

Industrial names in focus

Metals producers have been active. Nucor (NYSE:NUE) rose on higher steel prices, ahead of its Oct 26 earnings. Alcoa (NYSE:AA) jumped after third-quarter adjusted earnings of $1.82 a share beat estimates, though revenue of $3.7 billion missed. Reports differed on the size of Alcoa's gain. The company also disclosed a possible sale of land at its Massena East site tied to data-center development.

Regional bankers described strong business investment. Citizens Financial (NYSE:CFG) CEO Bruce Van Saun said, "This whole AI ecosystem build-out is kind of full-on. It's a very strong dynamic." PNC Financial Services (NYSE:PNC) CEO William Demchak said, "The clouds are as dark as they ever were, but the economy's still strong. People are investing into it."

Strength complicates the Fed's job

Strong output adds to the picture of an economy that is not slowing much, which matters for interest rates. The Federal Reserve raised rates a quarter point in September, its first hike in three years. This week's data have been hot across the board: September CPI showed annual inflation accelerating, producer prices posted their largest monthly gain since March 2022, and import and export prices beat forecasts.

The Atlanta Fed's GDPNow model is tracking solid third-quarter growth, market reports showed. Even so, the odds of an October hike fell to about one in six in futures pricing by Friday, while markets still price a hike by December. Fed Chair Kevin Warsh told an IMF gathering in Bangkok, "I don't prejudge meetings."

Markets

Stocks fell on Friday as technology sank. The S&P 500 dropped 84.62 points to 7,659.44, the Nasdaq Composite sank 572.99 points to 26,140.03, and the Dow Jones Industrial Average slipped 175.28 points to 52,002.41. Materials and energy were among the gainers, and six of 11 S&P 500 sectors rose, according to market data. The 10-year Treasury yield ended near 5.1.

Industrial Calendar After the Output Beat

The Fed decides Oct 28. The first estimate of third-quarter GDP and PCE inflation arrive Oct 29. S&P Global's flash PMIs on Oct 23 will offer an early read on October manufacturing activity, and industrial companies such as 3M (NYSE:MMM) and GE Aerospace (NYSE:GE) report Oct 20.