To Econintersect, the solid continuous improvement of Industrial Production (IP) remains one of the real bright spots in the USA’s economic “expansion”. The word “expansion” is an economist’s word – but the truth is that industrial output is in March 2011 is only 93.6% of the pre-recession level. IP remains in a depression and is (hopefully) nearing completion of a recovery.
The headlines from the Federal Reserves’ press release:
Industrial production increased 0.8 percent in March and rose at an annual rate of 6.0 percent for the first quarter as a whole. Manufacturing output advanced 0.7 percent in March, its fourth consecutive month of strong expansion; factory production climbed at an annual rate of 9.1 percent in the first quarter. Outside of manufacturing, the output of mines rose 0.6 percent in March, while the output of utilities increased 1.7 percent after declining significantly in the preceding two months. At 93.6 percent of its 2007 average, total industrial production was 5.9 percent above its year-earlier level. The rate of capacity utilization for total industry rose 0.5 percentage point to 77.4 percent, a rate 3.0 percentage points below its average from 1972 to 2010.
For those that missed Econintersect’s article on revisions (analysis here), there has been a major revision of the data since our February 2011 analysis. For analysts, the IP data is a nightmare are the Federal Reserve continues to revise the data base – and now revised the last six months of their total database revision of a few weeks ago. IP is simply a moving target.
Econintersect uses unadjusted data to analyze data as there are distortions in the adjustment methodology caused by the recessionary period.
This is a fairly strong performance for this months data. Hopefully this will carry forward for the rest of this year – and there will be little disruption in next month’s numbers caused the Japanese earthquake.
The Bank of Tokyo – Mitsubishi UFJ had an interesting graphic on the strength of the rebound in IP showing this is the strongest rebound since the recessions of the 1970’s.
Of course, the graph also shows that the last recession also had the largest decline in IP. That is the reason that we can have the strongest recovery since the 1970s and still be in recovery and not yet in expansion. And the numbers are really only meaningful at face value for a constant population and population is and has been growing. For clarification of depression and population normalization, see John Lounsbury’s discussion and Doug Short’s recent article.
The comparisons in the above graph are valid independent of population. The point is that if we included popluation growth for any of the recessions and recoveries, the resulting depressions would be of greater duration.
Depression: The Forgotten Part of the Business Cycle by John Lounsbury
Officially Out of Recovery and into Expansion – NOT by John Lounsbury
Normalized GDP – The “Real” Growth by John Lounsbury
Population Growth and Economic Indicators by Doug Short