Wednesday, May 16, 2012

Industrial Production Rebounds in April; Vehicle Assemblies Were Highest in Almost Five Years

The Federal Reserve released its report today on Industrial Production in April, here are some highlights:

1. Overall industrial output increased by 1.1% in April on a monthly basis, which was the largest monthly gain since a slightly higher 1.13% increase in December 2010.  It was also the 11th monthly gain in the last 12 months.  

2. On an annual basis, industrial production increased by 5.2%, which was the largest annual gain in more than a year.  Annual increases were especially strong for business equipment (12%), motor vehicle and parts (27.1%) and manufacturing (5.8%), especially for durable manufactured goods (10.1%) and oil and gas well drilling (11.9%).

3. The Federal Reserve reported motor vehicle assemblies of 10.67 million units in April (seasonally adjusted, annual rate), which was an increase of 35% over last year, and the highest monthly number of vehicles assembled since August 2007, almost five years ago.  Look for strong gains in vehicle sales to continue through the summer, and an ongoing rebound in Midwest manufacturing. 

Overall, a very positive report for output at America's factories during the month of April, and more evidence that the U.S. manufacturing sector is at the forefront of the economic recovery. 

Update: As Jon Murphy points out, the 1.1% monthly gain in factory output from March to April this year was the highest March-April gain since 1964. 

39 Comments:

At 5/16/2012 10:07 AM, Blogger Jon Murphy said...

Something else to bear in mind:

This year's March-to-April rise was the strongest since 1964. How about that!

 
At 5/16/2012 10:13 AM, Blogger VangelV said...


Overall, a very positive report for output at America's factories during the month of April, and more evidence that the U.S. manufacturing sector is at the forefront of the economic recovery.


It is evidence that the age of the fleet requires that vehicles are replaced. While the same factors should cause production and sales to remain high the overall health of the economy might keep the numbers lower than expected.

Before we get excited we should look at a few months of data and see what happens after the elections are over.

 
At 5/16/2012 10:25 AM, Blogger morganovich said...

a question:

isn't that assembly number still far below the sales number?

i thought sales were running at around a 14 million annualized rate.

does that imply significant inventory reduction or is there some strong seasonal issue here around new model years?

my understanding is that the auto guys are pulling out all the stops again on financing and leasing though to what extent that is driving this sales increase is unclear to me.

 
At 5/16/2012 10:25 AM, Blogger Jon Murphy said...

Before we get excited we should look at a few months of data and see what happens after the elections are over.

Actually, if you are look at the data, you'll see the annual data is 3.9% above last year, quarterly is 4.6%, April 2012 is 5.2% above April 2011, and Industrial Production has risen 11.3% above the recessionary low, the fastest rate at this point in the recovery/expansion since the '83-90 expansion. I'm pretty sure this is here to stay.

FYI, all this is adjusted for inflation.

 
At 5/16/2012 10:33 AM, Blogger Buddy R Pacifico said...

"... more evidence that the U.S. manufacturing sector is at the forefront of the economic recovery."

"... the 1.1% monthly gain in factory output from March to April this year was the highest March-April gain since 1964."


The highest gain in output in forty-eight years is stunning.

Build, baby, build.

or... Build, robots, build.

 
At 5/16/2012 10:33 AM, Blogger VangelV said...

Two points.

One, the increase comes off a very low level at a time when interest rates are zero so it is not yet meaningful. We need to see how the producers do under normal conditions when their borrowing costs for financing purposes are not zero.

Two, inflation is understated by BLS so the numbers are not what they appear. I saw an interesting comparison about HP ink cartridges. While the cartridges remain the same the amount of ink has been reduced. The BLS is not picking up such tricks among the producers. In fact, it is probably adjusting the numbers to make them look better by claiming an improvement of the ink as it does for computers and other electronic devices.

 
At 5/16/2012 10:39 AM, Blogger Mark J. Perry said...

Motor vehicle sales would include imports, these are just domestic assemblies. Even when sales were 16 million units, assemblies were never above about 13 million.

 
At 5/16/2012 10:39 AM, Blogger Jon Murphy said...

The highest gain in output in forty-eight years is stunning.

Right?! I mean, it is important to note that this is just one month; I seriously doubt we'll see many gains like that going forward. Still, it is a positive sign of ongoing economic growth, at least during 2012.

 
At 5/16/2012 10:43 AM, Blogger morganovich said...

jon-

might it just be playing catchup though?

the INDPRO series peaked in early 2007 and we are still 3% below that level which seems to me to make mark's consistent claim that manufacturing is leading the economy look quite questionable as, if gdp is already higher than the pre recession peak and indpro is not, i do not really see how you can describe manufacturing as leading.

also worth noting:

while mar-apr was a very sharp sequential increase, feb mar was a steep drop.

the indpro index went 96.9, 96.4, 97.4. looked at since feb, this growth is much less dramatic and the big seq % move from mar-apr seems to have more to do with coming off a sharp drop the previous period than a sudden acceleration of the economy.

 
At 5/16/2012 10:45 AM, Blogger morganovich said...

ah, that makes sense. was not considering imports. thanks.

 
At 5/16/2012 10:53 AM, Blogger Jon Murphy said...

might it just be playing catchup though?

Right, we certainly are playing catch-up. Like you said, there is about 3% more we have to go, but considering we are "driving" faster than we have the past to times, I think this is a good sign.

And you are absolutely right about the Feb-Mar drop. It was more steep than usual. WHich goes to my point about extrapolating a trend from one month. I doubt we'll see many 48-year gains in the future. It was something more of a piece of interest than a "this is what's gonna happen!" sort of deal.

And I understand your point entirely about the "being behind 3%." I know you and I have personally had many discussions about proper measures. But considering the increase in activity in this sector compared to others (construction, for one. Even retail sales, while I do champion it for being at record levels, is growing at less than 2%), it is good news. Will the rate of growth continue? It will probably start to diminish in a year or two. But given the conditions right now, manufacturing is doing quite well for itself, all things considered.

 
At 5/16/2012 10:59 AM, Blogger Buddy R Pacifico said...

"INDPRO"?

Ah, INDPRO.

 
At 5/16/2012 11:00 AM, Blogger morganovich said...

jon-

do you know how the indpro series is deflated?

or is it calculated using actual physical output?

i cannot seem to find any methodology description in the fed site.

 
At 5/16/2012 11:08 AM, Blogger Jon Murphy said...

Morganovich-

I like to deflate it myself using the PPI. I'm 99% sure they use value, but now you have me second guessing myself.

 
At 5/16/2012 11:18 AM, Blogger Jon Murphy said...

Morganovich-

So, all it says is the Fed uses "real output." I'm assuming they use a value, then deflate it, probably with the PPI (which means I have been double-deflating).

Here you go

 
At 5/16/2012 11:25 AM, Blogger Buddy R Pacifico said...

Morgan,

Go to page 135 of this Fed Paper on Industrial Production and Capacity Utilization for explanation of deflators currently used for INDPRO data.

 
At 5/16/2012 12:18 PM, Blogger morganovich said...

thanks buddy.

unfortunately, it's a bit of a black box. sounds like a detailed and granular approach, but there does not seem to be a way to really see its output nor any comments on if and how they adjust the raw data.

 
At 5/16/2012 12:55 PM, Blogger marmico said...

Natural gas added 22 basis points to industrial production (IP) in April. Motor vehicle assemblies added 21 basis points. The mean regression in the weather was just as strong a factor as auto plants.

It's remarkable what global warming can do to IP. :-)

 
At 5/16/2012 1:01 PM, Blogger bart said...

April ISM Manufacturing, PMI composite index is down 9.3% from last year.

The last 6 months of years over year changes:

-9.5%
-9.2%
-11.0%
-14.7%
-12.7%
-9.3%

 
At 5/16/2012 1:03 PM, Blogger Jon Murphy said...

April ISM Manufacturing, PMI composite index is down 9.3% from last year.

But the PMI remains firmly above 50.0, indicating expansion in manufacturing. As we've been saying: slow but steady economic improvement.

 
At 5/16/2012 1:22 PM, Blogger bart said...

I'm much less optimistic, especially given the many major issues in the rest of the world - China and the EU being the major two.

Although it is above 50, it's much less so than last year and the trend is not encouraging.

 
At 5/16/2012 1:23 PM, Blogger morganovich said...

jon-

but the fact that ism keeps dropping yoy does seem like a significant contrast to the big monthly jump in indpro and seems to point toward it being more an aberration and a response to and result of a weak march than the start of an acceleration.

 
At 5/16/2012 1:33 PM, Blogger Jon Murphy said...

Given that the PMI is a diffusion index, comparing it to the year-earlier number doesn't really provide us with any intrinsic information. Basically, the question is "Have manufacturing conditions improved from last month given these criteria?" The mere fact that April 2012 has improved better/worse than March 2011 doesn't really tell us anything in terms of the over all economy nor its direction. The sets of conditions are different.

That being said, we can infer some changes based on the trend of the year-ago numbers. The trend we see emerging is a rising trend.

The fact that the PMI is X% above/below last year does not indicate the manufacturing sector has expanded/shrunk X% in the past year. When considering the PMI it is more important to monitor the actual Index and it's overall trend direction. The PMI indicates manufacturing has expanded the past 33 months. I doubt that streak will be broken any time this year.

 
At 5/16/2012 1:38 PM, Blogger Jon Murphy said...

I'm much less optimistic, especially given the many major issues in the rest of the world - China and the EU being the major two.

Europe and China are areas to monitor, that's for sure. But considering Europe's problems have been going on for over two years now and China's issues were around last year and the US still grew in 2011, I don;t think they will be as much of a problem as we think, barring a major meltdown which is unlikely at this point.

I mean, think of it like this:

In 2011, we experienced a tsunami in Japan, flooding in Thailand, civil unrest across the world, Europe's crisis, China's slowdown, two near defaults by the US government, financial scandals, oil spikes, and the Arab Spring, yet the US economy still grew. We were in a weaker condition then. It will take something drastic: an actual recession in China or Europe completely falling apart, to knock us off this course.

 
At 5/16/2012 1:50 PM, Blogger bart said...

I submit that Europe's problems have been going on for far longer than two years, and that they have successfully managed to kick the can down the road up to now. I doubt we'll be that lucky during the next 12 months, part of my reason for way less optimism than you.

I submit the same situation for the US, just to a bit lesser extent.

As for China, it's obvious and substantial slowing can't help but whack the whole world - very much including the US.

Considering the ridiculously low levels of the GDP deflator, actual US growth is and has been shaky at best.


Time will tell which of us is correct... and I vote me. ;-)

 
At 5/16/2012 2:15 PM, Blogger morganovich said...

jon-

"
I mean, think of it like this:

In 2011, we experienced a tsunami in Japan, flooding in Thailand, civil unrest across the world, Europe's crisis, China's slowdown, two near defaults by the US government, financial scandals, oil spikes, and the Arab Spring, yet the US economy still grew. We were in a weaker condition then. It will take something drastic: an actual recession in China or Europe completely falling apart, to knock us off this course."

well, one could also look at this the other way and say that 2011 had all those issues that depressed growth and output so 2012 is an easy yoy comp as a result meaning that such rosy yoy numbers are going to be unsustainable once the comps start getting harder again.

2011 had rough weather in the us too while 2012 has been very benign.

i'm less convinced that this is a serious recovery than a case of easy comps and low deflators.

it seems like we'd be seeing more jobs growth if this recovery was solid.

i worry about stats like vehicle assembly because they are so heavily affected by financing terms.

indpro reports growth, but the BEA uses even dodgier deflators than the BLS (as evidenced by recent gdp deflators) so, while i have no detail on their indpro-d, i do have some suspicions it might be too low.

 
At 5/16/2012 2:22 PM, Blogger VangelV said...

I'm much less optimistic, especially given the many major issues in the rest of the world - China and the EU being the major two.

I think that you inadvertently left someone out.

 
At 5/16/2012 2:27 PM, Blogger Hell_Is_Like_Newark said...

How much rebound in manufacturing could be tied to the Bonus Depreciation passed back in 2010?


From IPC.org:

President Obama signed into the law the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” H.R. 4853, that will provide 100 percent bonus depreciation for investments placed in service after September 8, 2010 and through December 31, 2011.

 
At 5/16/2012 2:53 PM, Blogger bart said...

I think that you inadvertently left someone out.


Yep... I wanted to be gentle with him.

 
At 5/16/2012 2:58 PM, Blogger bart said...

There should have been a *grin* after "Yep... I wanted to be gentle with him."

Apparently blogspot filters left & right carets.


(if there's a way to edit a post, I don't know it)

 
At 5/16/2012 2:58 PM, Blogger bart said...

How much rebound in manufacturing could be tied to the Bonus Depreciation passed back in 2010?

That sure could account for some (much?) of the trend differences between production and the ISM manufacturing data sets.

 
At 5/16/2012 4:43 PM, Blogger Buddy R Pacifico said...

bart states:

"April ISM Manufacturing, PMI composite index is down 9.3% from last year."

This what the ISM Manufacturing Report states about overall activity:

"The PMI registered 54.8 percent, an increase of 1.4 percentage points from March's reading of 53.4 percent, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March."

Things could certainly change in May, but the very good 33 month trend extended through April.

 
At 5/16/2012 9:29 PM, Blogger OBloodyHell said...

LOL, what are they making those cars out of, ICE?

 
At 5/16/2012 11:13 PM, Blogger Henry H said...

Buddy Pacifico,

The y-o-y comps should be even more favorable from May through October. Toyota and Honda domestic plants cut production drastically at the factories. Workers were idled or went to training classes, due to parts shortages from Japanese factories. There may be a rebound effect of above average production for models like the Camry(Georgetown, KY factory), which were hard to find on dealers lots in the 3rd/4th quarter of 2011.

 
At 5/16/2012 11:22 PM, Blogger Henry H said...

Toyota is spending $32 million to expand Georgetown, KY plant to make 100k more engines.

http://www.wtvq.com/content/localnews/story/Toyotas-Georgetown-plant-to-make-more-engines/r3OoCFEqmUSs3pTMtZ-EYQ.cspx

 
At 5/17/2012 9:50 AM, Blogger morganovich said...

philly fed index just went into negative territory for april.

that seems quite dissonant with the big jump in inpro.

granted, just one region, but will be interesting to see the other regionals in the next few days.

 
At 5/17/2012 9:57 AM, Blogger bart said...

Philly fed employment index also WAY down, and in negative territory... and it correlates well with NFP.

 
At 5/17/2012 10:55 AM, Blogger Jon Murphy said...

Morganovich,

Hopefully you'll read this:

INDPRO is measured in physical units, not value.

 
At 5/17/2012 12:01 PM, Blogger Buddy R Pacifico said...

Jon Murphy,

The INDPRO seems to be derived from units x value added weight and then deflated.

From the Fed paper I ref above:

"Individual IP series are derived from (1) annual indexes of industry output that are calculated using comprehensive information sources and (2) production indicators that are available for inclusion in the
monthly index within the regular four-month reporting window. The annual index determines the trend
for a series from one year to the next, and the production indicator determines the monthly changes
for a series within each year. Each series is seasonally
adjusted, and the contribution of the change in an IP series for an industry to the monthly change in the overall IP index is based on the value added by that
industry.
The annual indexes for individual IP series are derived from detailed industry data. For each fourdigit SIC industry in manufacturing, an annual chaintype
measure of the real gross output of an industry is compiled. The value of the production is represented by Census data on the industry’s value added plus its
cost of materials; the real output measure is obtained
by deflating the value of production by an annually
weighted chain-type price index compiled from detailed information on the composition of the industry’s products. Most of these price indexes are obtained from the Bureau of Economic Analysis
(BEA). Because an individual IP series may represent a combination of several four-digit SIC industries, the annual indexes for many manufacturing IP series
are constructed from a number of industry gross output
measures; for these indexes, the contribution of each component industry to the annual index is based on the value added by that industry."


It's really complicated.

 

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