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Friday, December 14, 2012

Fed Watch: Solid Bounce in Industrial Production

Tim Duy:

Solid Bounce in Industrial Production, by Tim Duy: Industrial production posted a solid gain in November, more than offsetting the Sandy-impacted October decline:

Ip1

This means that what had been the best clear top in a recession indicator is a lot less clear. A solid blow to ECRI Co-Founder Lakshman Achuthan's claim that the US slipped into recession in the middle of the year.

I noticed this quote from Bloomberg:

“There is this continued tug of war for manufacturing,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, who forecast a 1.2 percent gain in manufacturing output. “Consumer spending is still looking pretty good so that’s helping support production. On the other hand, business demand for things like capital equipment, machinery is pausing.”

That vexing consumer spending question again - pretty good, on shaky grounds, or a pillar of strength? I would say the middle ground holds, as least on the basis of core retail spending in November:

Retail

Of course, on a year-over-year basis, the deceleration from the earlier this year remains evident:

Retail2

It is worth remembering that at least one consumer sector that is an important element of manufacturing activity remains solid:

Autos

I have trouble imagining IP rolling over and heading downward in any meaningful fashion when auto sales are still on the upswing. Moreover, improving residential construction activity will provide support to suppliers of related manufactured goods:
House
Not to say the economy is growing gangbusters, but I think that Markoswka is broadly correct. The external sector and domestic business spending are a drag on some sectors of manufacturing, but other sectors are still growing. The upshot is that the decline in core manufacturing orders has yet to manifest itself in a broad decline in industrial production:

Ip2

Bottom Line: Weaker than we would like to see, but news of the economy's demise remains premature.

    Posted by on Friday, December 14, 2012 at 09:34 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (9)

          


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