The headlines say industrial production declined 0.2% in November 2011 and up 3.7% year-over-year. Econintersect’s analysis is down 0.4% month-over-month while up 3.9% year-over-year.
The real story is that Industrial Production’s rate of growth has been essentially flat for the last six months. Please read caveats below for an understanding of backward revisions which occur in this index.
IP headline data has three parts – manufacturing, mining and utilities. In the November 2011 report, manufacturing was up 3.8%, mining up 6.7% and utilities were down 0.7% (all percentages year-over-year).
The Fed explanation of the headline data:
Industrial production decreased 0.2 percent in November after having advanced 0.7 percent in October. Factory output moved down 0.4 percent in November; excluding a drop of 3.4 percent in the output of motor vehicles and parts, manufacturing production declined 0.2 percent. Mining production edged up 0.1 percent, while the output of utilities rose 0.2 percent. At 94.8 percent of its 2007 average, total industrial production for November was 3.7 percent above its year-earlier level. Capacity utilization for total industry decreased to 77.8 percent, a rate 2.0 percentage points above its level from a year earlier but 2.6 percentage points below its long-run (1972–2010) average.
The output of consumer goods declined 0.5 percent in November. The production of durable consumer goods fell 1.4 percent, as the indexes for automotive products and home electronics dropped 2.0 percent or more. The output of appliances, furniture, and carpeting decreased 0.2 percent, while the output of miscellaneous goods increased 0.6 percent. The production of nondurable consumer goods moved down 0.2 percent; an increase of 1.0 percent for consumer energy products was outweighed by a decrease of 0.7 percent for other nondurable consumer goods. The decline in non-energy nondurables reflected reduced output for each of its major categories.
Econintersect uses unadjusted data and graphs the data YoY in monthly groups. From this display 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 almost unchanged beginning May 2011 – however the trend line may have an almost imperceptible upward bias.
Regardless of interpretation, 3.9% year-over-year growth is NOT recessionary. Industrial Production has simply been growing at a fixed rate averaging 3.8% for the last 6 months.
It shows that the industrial portion of the USA economy is doing better than many other elements.
Caveats in the Use of Industrial Production Index
Industrial Production is a non-monetary index – and therefore inflation or other monetary adjustments are not necessary.
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 primarily on weather variations. However, economic downturns have been signaled watching the manufacturing portion only of Industrial Production. Manufacturing year-over-year growth has been historically negative before a recession is imminent. This index is not indicating a recession is imminent. [note: graph below updated through October 2011]
Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).