June Industrial Production was close to expectations and rose to a new post-recovery high. Manufacturing Production (which excludes utilities from Industrial Production) posted a 0.7% gain which largely offset earlier weakness. While neither series shows very impressive growth in recent months, neither is there any sign here of a decline or impending recession. Economies aren't like businesses, which can go into decline if they fail to thrive. Economic growth can slow, as it has in recent months, but that does not mean it must eventually decline. As the bottom chart above shows, manufacturing growth has slowed down a number of times in the past without there being a subsequent recession. And despite the recent slowdown, year-over-year gains are still reasonably healthy: 4.7% for Industrial Production and 5.6% for Manufacturing Production.
UPDATE: As reader "brodero" notes, production of business equipment, a good indicator of business confidence and likely a leading indicator of future productivity gains, is up at strong, double-digit rates over the past 3, 6, and 12 months (13.7%, 14.7%, and 12.7%, respectively). This is a very healthy sign.
The good news is that increasing industrial production no longer requires increasing labor costs -- said another way, the industrial world has finally rid itself of the drag of labor -- eliminating labor costs from industrial production is a fine goal -- the lower the labor costs, the higher the dividends -- as for labor, and especially the long-term unemployed, good luck...
ReplyDeleteI'm not impressed with the 0.4% gain on industrial production as the previous two months were revised down by 0.5%. The 97.4 reading was a post recession high because the previous post recession high was revised lower. My guess is that this result will be revised down in future reports.
ReplyDeleteThe Industrial Production-Business
ReplyDeleteEquipment is up 12.8% y-o-y...Industrial Production Durable Consumer Goods is up 12.8% y-o-y....
these numbers are nowhere near recessionary conditions...