Written by Steven Hansen
The headlines say seasonally adjusted Industrial Production (IP) strongly improved, but headline manufacturing unexpectedly declined. Our view is similar to the headlines.
Analyst Opinion of Industrial Production
The market expected improvement this month in industrial production. Utilities were the wobble this month as it strongly improved whilst manufacturing surprsingly fell and mining insignificantly improved. This report is weak as utilities seem to only measure the weather and not the health of the economy. The manufacturing surveys all predicted improvement – and it was NOT delivered. As there was some backward revision in the last six month’s of data, the best way to view this is the 3 month rolling averages which improved and remains in expansion..
Manufacturing employment growth remains flat year-over-year..
- Headline seasonally adjusted Industrial Production (IP) was up 0.5 % month-over-month and up 1.5 % year-over-year.
- Econintersect‘s analysis using the unadjusted data is that IP growth accelerated 2.0 % month-over-month, and is up 2.1 % year-over-year.
- The unadjusted year-over-year rate of growth accelerated 0.4 % from last month using a three month rolling average, and is up 0.7 % year-over-year.
- The market was expecting (from Bloomberg / Econoday):
| Headline Seasonally Adjusted | Consensus Range | Consensus | Actual |
| IP (month over month change) | -0.1 % to 1.1 % | +0.4 % | +0.5 % |
| IP Subindex Manufacturing (month over month change) | -0.7 % to 0.4 % | +0.3 % | -0.4 % |
| Capacity Utilization | 75.5 % to 76.6 % | 76.0 % | 76.1 % |
IP headline index has three parts – manufacturing, mining and utilities – manufacturing was down 0.4 % this month (up 0.8 % year-over-year), mining up 0.1 % (up 2.9 % year-over-year), and utilities were up 8.6 % (up 4.6 % year-over-year). Note that utilities are 10.8 % of the industrial production index, whilst mining also is 10.8 %.
Comparing Seasonally Adjusted Year-over-Year Change of the Industrial Production Index (blue line) with Components Manufacturing (red line), Utilities (green line), and Mining (orange line)
Unadjusted Industrial Production year-over-year growth for the past 2 years has been near or below zero – it is currently in contraction but trending up.
Economic downturns have been signaled by only watching the manufacturing portion of Industrial Production. Historically manufacturing year-over-year growth has been negative when a recession is imminent.
Seasonally Adjusted Manufacturing Index of Industrial Production – Year-over-Year Growth
Seasonally Adjusted Capacity Utilization – Year-over-Year Change – Seasonally Adjusted – Total Industry (blue line) and Manufacturing Only (red line)
Econintersect uses unadjusted data and graphs the data YoY in monthly groups.
The industrial portion of the USA economy is in a recession.
Summary of all Federal Reserve Districts Manufacturing:
Richmond Fed (hyperlink to reports):
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Kansas Fed (hyperlink to reports):
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Dallas Fed (hyperlink to reports):
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Philly Fed (hyperlink to reports):
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New York Fed (hyperlink to reports):
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Federal Reserve Industrial Production – Actual Data (hyperlink to report):
Holding this and other survey’s Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (lighter blue bar) to the Dallas Fed survey (light blue bar).
In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.
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. If the current values are better than the original values – this is normally a sign of an improving economy.
This index is somewhat distorted by including utility production which is noisy, based primarily on weather variations. There is some variance between the manufacturing component of industrial production which monitors production, and the US Census reported Manufacturing Sales. While it is true that these are slightly different pulse points (inventory not accounted in shipments) – they should not have different trends for long periods of time.
Comparing Year-over-Year Change – Unadjusted Manufacturing Industrial Production (blue line) to Unadjusted Manufacturers Shipments (green line)
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 New Normal effects and the Great Recession distort historical data).
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