Industrial Production Nearly Flat – Why Forecasters Are Wrong

Industrial Production (IP) in January 2011 is essentially flat but the stock market is up.  Even though IP contributes less than 20% to USA GDP, and makes up less than 9% of non-farm employment – it does correlate to market movements.

The market punters and analysts believed IP was going to rise because of great and glowing improvements in ISM Purchasing Managers Survey (analysis here), and the various Federal Reserve Surveys (here)(here) and (here).  Much of the time, Econintersect believes, surveys are good for little more than bar talk.

Industrial production decreased 0.1 percent in January 2011 after having risen 1.2 percent in December.  In the manufacturing sector, output increased 0.3 percent in January after an upwardly revised gain of 0.9 percent in December. Excluding motor vehicles and parts, factory production rose 0.1 percent in January. The output of utilities fell 1.6 percent in January, as temperatures moved closer to normal after unseasonably cold weather boosted the demand for heating in December; the output of utilities advanced 4.1 percent in that month. In January, the output of mines declined 0.7 percent. At 95.1 percent of its 2007 average, total industrial production in January was 5.2 percent above its level of a year earlier. The capacity utilization rate for total industry edged down to 76.1 percent, a rate 4.4 percentage points below its average from 1972 to 2010.

Econintersect uses unadjusted data to analyze data as there are distortions in the adjustment methodology caused by the recessionary period.

Yet, in reality – IP likely is up but by little enough that we will call it nearly flat for argument sake.  Blame the recession for screwing up the data which is used for seasonal adjustment factors.

Looking at the components of IP – energy production was a drag this month, unlike last month (analysis here).  The data seems a little noisy this month to draw any conclusions.

Related Articles

ISM Manufacturing Survey Improvement Continues  by Steven Hansen

Empire State Manufacturing Survey Improves – What Is This Saying?  by Steven Hansen

Philly Fed Business Survey Implies Conditions Improving  by Steven Hansen

Thank the Weather for Industrial Production Increase in December 2010  by Steven Hansen

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