Industrial Production is Down – Actually Good News

February 2011 Industrial Production (IP) data is chaotic.  It will take a lot of words to describe what is actually positive IP data.  From the Federal Reserve Statistical Release:

Industrial production declined 0.1 percent in February after having risen 0.3 percent in January; output in January was previously estimated to have edged down 0.1 percent. Manufacturing output increased 0.4 percent in February, and the gain in January was revised up to 0.9 percent. Outside of manufacturing, the output of mines rose 0.8 percent in February, which more than reversed its decline in January. However, the output of utilities fell 4.5 percent—the drop reflected unseasonably warm weather in February, which reduced the demand for heating after two months of unseasonably cold temperatures. At 95.5 percent of its 2007 average, total industrial production was 5.6 percent above its year-earlier level. The capacity utilization rate for total industry edged down 0.1 percentage point to 76.3 percent, a rate 4.2 percentage points below its average from 1972 to 2010.

It should be emphasized that excluding utilities – industrial production rose. The table below shows the real story of the strong upward revision of the January data and the two significant changes in February:  the large increase in manufacturing and the large drop in electricity production.

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

Industrial Production is up against the large growth last year, and the growth trend line is trending down. 

Despite the downward trend in the rate of change, IP appears to be in a strong growth cycle with no indication of any slowdown.  The downward trend in the rate of change is an artifact of the strong surge in industrial production in the early months of 2010.

Related Article

ISM Manufacturing Survey Implies Manufacturing Improvement Continues  by Steven Hansen

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