Monday, November 17, 2008

Sorry folks but industrial production screams recession

Today the Federal Reserve reported an unexpected 1.3% surge in October industrial production. Capacity utilization increased to 76.4%, and production in manufacturing, mining, and utilities grew 0.6%, 6.1%, and 0.4%, respectively. Consumer goods production increased 1.3%, while business equipment production fell another 2.2% (following a September 7.1% decline). Sounds great, right? Wrong.

One could curtly say that the downward trend is broken, but alas, we are in a recession right now, and good news is for the birds.

September industrial production growth was revised downward almost 1.0% to a 3.7% contraction. And furthermore, the Boeing strike and Hurricanes Gustav and Ike played their part in upward-biasing the data.

The chart (click to enlarge) illustrates monthly industrial production spanning 2006-2008 in levels (the index) and in annual growth rates (for all you y/y buffs on the right axis) as reported by the Fed and also without the effects of the Boeing strike and Hurricanes Gustav and Ike.

Without the super sizing effect of the strike and hurricanes, industrial production continued its nose dive that started in August and is down almost 12% 6% over the year. This is a significant and negative development in the only monthly measure of U.S. production.

The October industrial production release is just another piece of the recession puzzle for the National Bureau of Economic Research’s (NBER), where one more of its five major indicators - labor, wholesale and retail sales, industrial production, gross domestic product, and personal income – show that the economy is neck-deep in a recession.

Rebecca Wilder


  1. Why is industrial production higher when the Boeing strike is counted? Shouldn't a strike reduce industrial production?

    Perhaps if everyone went on strike, the recession would go away! :-)

    Or, do the hurricanes (a temporary factor) simply overwhelm the effect of the Boeing strike (another temporary factor)?

  2. Hi James,

    Good to hear from you! Most of the surge in October was due to the mines, oil, and gas coming back online after the Hurricanes Gustav and Ike. You are right: the Boeing strike (according to the Fed) further reduced industrial output 0.5% and 0.1% in September and October. So the strike reduced the monthly numbers further (downward revision in September), while the dissipation of the negative effects coming from the hurricanes gave a big boost in October. There will likely be a boost going forward with the end of the Boeing strike.

    And as always, thank you for your comment!