Monday, October 28, 2013

Industrial production improves

It's old news by now, but today we learned that U.S. industrial production in September was stronger than expected (+0.6% vs. +0.4%), and registered a 3.2% increase year over year. That's decent, unspectacular growth which shows no sign of stagnating or declining. By now, it's very likely that the industrial side of the U.S. economy has fully recovered—after more than four years—to its pre-recession levels and is breaking new high ground. As the above chart shows, the Eurozone has fallen significantly behind the U.S., but appears to be firming of late. It's safe to say that the recent Eurozone recession is over and a modest recovery there is underway.

A comparison of U.S. to Eurozone equities show just how significant the shortfall in Eurozone industrial production has been. The PIIGS sovereign debt crisis and its attendant uncertainties put a real dent in Eurozone GDP, and that in turn resulted in a Eurozone equities underperforming their U.S. counterparts by roughly one-third.

The chart above shows CDS spreads on Spanish 5-yr sovereign debt. After peaking in 2012, spreads have plunged, reflecting a significant decline in Spain's default risk. Spreads have now returned to pre-PIIGS-crisis levels, a turnaround that is not widely appreciated. Eurozone equities bottomed around the same time that CDS spreads peaked, and have recovered significantly as spreads have dropped. This suggests that the recent rally in Eurozone equities has been driven by a substantial improvement in the fundamentals of the Eurozone economy: e.g., much less default risk, the end of the recession, and the gradual return of growth. We have yet to see whether Eurozone growth can outpace that of the U.S.


MCKibbinUSA said...

Clearly, the good times have returned -- US manufacturing has now fully recovered from the economic crisis -- all is well!

Benjamin Cole said...

If someone said to you, "Industrial production is up 28 percent in the United States since 1997," what would be your response?

Yet, that is that these figures show.

The private sector is an amazing animal, doing more for less continuously. The public sector probably does less for more, every year.

As Scott Grannis says, we just need a bigger private sector and a smaller public sector.

marmico said...

As Scott Grannis says, we just need a bigger private sector and a smaller public sector.

Baloney. The private sector produces deflationary (smaller) durable goods. The public sector produces inflationary (bigger) health care and education.

Durable goods are 10% of the economy. Health care and education are double that with no end in sight.


US manufacturing has now fully recovered

No. Energy extraction has moved the IPMAN needle.

marmico said...

Ooops. Substitute INDPRO for IPMAN.

William said...

marmico said..."The public sector produces inflationary (bigger) health care and education."

I don't follow you Marmico. US Healthcare is privatized. Medicare and Medicaid only pay the bills according to the laws passed byt Congress. Prior to the passage of these laws in the 1960s, many elderly and poor patients couldn't afford to pay their physicians -other than with an occasional chicken. As a physicin, I have heard that story several times from older colleages when I enter practic in the 1970s.

Medicare and Medicaid do not hire physicins, nurses, lab techs etc. The ever rising inflation in Healthcare is generated by the for profit private sector system which in practice is non-competitive.

And consider the unhealthy, quite obese US population which requires more and more care, medications, etc. The cost of healthcare goes up each year because of an aging population; because folks don't exercise or eat a healthy diet; and because drug companies, etc. keep raising their prices.

So I don't understand your point.