According to Osprey Associates, industrial production in the US fell for the second month in a row in October fueling concerns that the 6 year old economic recovery may be flagging even as the central bank mulls its first interest rate hike in almost a decade.

According to the data from the Federal Reserve, industrial production which is made up of the output by manufacturing, mining, and energy including electric and gas utilities, fell by 0.2% last month following a 0.2% fall in September.

“Expectations had been for a 0.1% increase in the measure so the news was a surprise, at least to those who still believe the economy is growing healthily,” said James Conroy, chief economist at Osprey Associates. “

The US’s industrial sector has been troubled by a steady slowing in growth around the world as well as the fall in commodity prices and a strong US dollar that has hurt demand for US manufactured products abroad.

“This data supports our positioning on the issue of an interest rate hike in December insofar as it throws the likelihood of one into further doubt. Raising interest rates into a weakening economic cycle would be unprecedented especially given that the first quarter of the year is noted for very weak growth” said Conroy.

Osprey Associates has told clients to position themselves for, at best, a 25 basis points increase in the Fed Funds rate and “no more” citing headwinds facing the US economy. It has recommended emerging market equities with a bias towards Chinese stocks.

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