There is a continuing story recently – revise downward the previous month – and publish a gain for the current month. This game continues in the September 2011 Industrial Production (IP) data where the headlines show an increase of 0.2% month-over-month after revising downward the previous month by 0.2%.
The real story is that Industrial Production’s rate of growth has been essentially flat for the last five months.
To begin, IP headline data has three parts – manufacturing, mining and utilities. In the September report, manufacturing was up 3.9%, mining up 5.2% and utilities were down 3.6%. Having utilities in the mix may or may not be confusing the data as weather creates nuances in the data.
The Fed explanation of the headline data:
Industrial production increased 0.2 percent in September after having been unchanged in August. Previously, industrial production was reported to have stepped up 0.2 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent. Manufacturing output moved up 0.4 percent in September after having gained 0.3 percent in August. Production at mines advanced 0.8 percent in September, while the output of utilities decreased 1.8 percent. At 94.2 percent of its 2007 average, total industrial production for September was 3.2 percent above its year-earlier level. Capacity utilization for total industry edged up to 77.4 percent, a rate 1.7 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972–2010) average.
As Econintersect uses unadjusted data, it graphs the data YoY in monthly groups. It is difficult to tell by visual inspection whether industrial production improved this month.
It is obvious graphing year-over-year change that Industrial production growth rate has been unchanged beginning May 2011.
As stated in this weekend’s article Signs of Life in the Economy, year-over-year growth has been historically negative before a recession is imminent. Regardless of interpretation, 3.4% year-over-year growth is NOT recessionary. Industrial Production has simply been growing at a fixed rate averaging 3.4% for the last 5 months.
It shows that the industrial portion of the USA economy is doing better than most other elements.
Caveats in the Use of Industrial Production Index
The monthly index values are normally revised many months after initial release and are subject to annual revision. The following graphic is an example of the variance between the original released value – and the current value of the index for the period ending with September 2011 release.
This index is somewhat distorted by including utility production which is noisy based on weather.