Weekly Economic Release Summary – Industrial Production Signals Slower Economic Growth In 1Q2019

The headlines say seasonally adjusted Industrial Production (IP) declined month-over-month. Our analysis shows the three-month rolling average declined.

Note that the manufacturing portion of industrial production is only up 1.0 % year-over-year.

IP headline index has three parts – manufacturing, mining and utilities – manufacturing was up 0.0 % this month (up 1.0 % year-over-year), mining down 0.8 % (up 10.5 % year-over-year), and utilities were up 0.2 % (up 3.8 % year-over-year). Note that utilities are 10.4 % of the industrial production index, whilst mining is 14.6 %.

Trade data headlines show the trade balance improved from last month – and yet the rolling averages for exports and imports declined.

• Imports of goods were reported up month-over-month – import goods growth has positive implications historically to the economy. Econintersect analysis shows unadjusted goods (not including services) growth decelerated 1.4 % month-over-month (unadjusted data) – down 0.9 % year-over-year (up 0.4 % year-over-year inflation adjusted). The rate of growth 3-month trend is decelerating (rate of change of growth declined).
• Exports of goods were reported up month-over-month, and Econintersectanalysis shows unadjusted goods exports growth decelerated (not including services) 1.6 % month-over-month – up 1.9 % year-over-year (up 1.6 % year-over-year inflation adjusted). The 3-month rate of growth trend is slowing.

The headlines say wholesale sales improved month-over-month with inventory levels worsening and very elevated. Our analysis shows a deceleration of the rate of growth for the rolling averages.

Overall, the rolling averages tell the real story – and they declined this month – and are at two-year lows. This sector’s growth continues to trend down. This sector is in contraction if one inflation adjusts the data.

Inventory levels this month are at recessionary levels.

Note that both ECRI and RecessionAlert have improving trend lines. RecessionAlert is projecting the strongest growth of all the indicators.

The leading indicators are to a large extent monetary based. Econintersect does not use any portion of the leading indicators in its economic index. Most leading indices in this post look ahead six months – and are all subject to backward revision.

Leading Indicators Conclusion: At this point, Econintersect continues to see NO particular dynamic which will deliver noticeably better growth in the foreseeable future – and no indicator is forecasting a recession over the next six months.

• Chemical Activity Barometer (CAB) growth rate is below average for times of economic expansion and its rate of growth and its rate of growth is slowing.
• ECRI’s WLI is forecasting little if any growth in the business cycle six months from today with improving trends.
• The Conference Board (LEI) improved this month – and the authors say “Despite the relatively large gain in March, the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year-end”.

• The Philly Fed’s Leading Index continued backward revisions make this index worthless – however its growth trend currently is projecting growth at an 8 year low.
• RecessionAlert’s Weekly Leading Economic Index forecast improved and is now projecting improving growth 6 months from today. The trend is for improving the rate of growth.
• Econintersect’s Economic Index is projecting a soft rate of growth.

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated: “Economic activity expanded at a slight-to-moderate pace in March and early April“. The previous report stated: “ten Districts reporting slight-to-moderate growth, and Philadelphia and St. Louis reporting flat economic conditions“.

After reading the narrative, one gets the feeling of a little change and a slow economy.

Retail sales improved according to US Census headline data. Although the three-month rolling average improved, it was slight and the overall long term downward trend remains in play. Please consider that this data is not adjusted for inflation. There is no growth in employment in this sector.

Headlines show final business sales data (retail plus wholesale plus manufacturing) improved. However, the rolling averages declined. Inventories remain very elevated. There is almost no growth if the data is adjusted for inflation.

The headline residential building permits slowed and construction completions improved relative to last month. This data was worse than expected.

In summary, the rolling averages say this sector is contracting.

We consider this report worse than last month.

New York Fed Manufacturing – improved and remains in expansion. Overall this survey remains in the lower range of values seen in the last two years.

Philly Fed Manufacturing – declined by remained in expansion. Key elements remained in positive territory. Although the survey index declined, the key element sales significantly improved while unfilled orders significantly declined. Overall, I do not consider this survey much different than last month.

Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.