March 27th, 2014
in Op Ed
by Lee Adler, Wall Street Examiner
The seasonally adjusted headline number for February Industrial Production crushed economists' expectations, coming in at a month to month gain of 0.6% versus the pros' guesstimate +0.1%.
Wall Street Examiner Professional Edition readers weren't surprised because throughout February we had seen that Federal withholding tax data was showing exceptionally strong gains year to year. That told us that the dour forecasts of clueless economists who were watching the weather, rather than real time hard data, were wrong. We had a good idea that the subsequently released data would surprise on the upside.
The actual number for February, not seasonally adjusted, was 101.1, a gain of 3.2% on a year to year basis. The annual growth rate has been very stable, near 3% for the past 6 months.
February is typically a mixed month versus January with an average month to month index gain of 0.22 over the past 10 years. Gains were much larger during the bubble years from 2004 to 2007, then they turned into large declines in February from 2008 to 2011. Last month's gain was 0.20. Last year, February's increase was 0.13. The current number is unremarkable both on a month to month and year to year basis. While the economists got it wrong, so did the seasonally manipulated headline number. The market was surprised and reacted accordingly, but the fact is that the report wasn't that great. It was... meh...
The US economy is a big lumbering behemoth consisting of hundreds of millions of actors and billions of transactions every day. It has a life of its own, an inertia against which all of the Fed's policy manipulations are insanely meaningless. Moreover those manipulations are dangerous because they promote distortion, malinvestment, and asset bubbles. The Fed's few hawks have protested that all along. Maybe the doves are finally getting it through their delusional skulls that QE has not worked, and has put us all back in immense danger.
Perhaps QE 1 had something to do with getting the economy turned around or perhaps it would have turned on its own. That's just unknowable. But the assumption that the Fed caused the recovery is also questionable. We didn't try anything else. The recovery might have come along anyway, probably would have in my view.
Looking at the chart, it's clear that QE2 in 2011, and QE 3-4 from November 2012 until now have had absolutely no impact on stimulating production. In fact, the rate of growth slowed dramatically under QE2, and it has barely budged from the 2-3% growth range in the past 3 years whether the Fed had QE on hiatus or was printing full bore. It just has not helped the economy.
But it has driven one hell of a stock market bubble. Until very recently the majority at the Fed still had not accepted the fact that bubbles sow the seeds of their own destruction. They probably still don't. Delusions are tough to shake.