## Wednesday, February 17, 2010

### First Annual Growth in Mfg. Output in 22 Months

From today's Federal Reserve release, U.S. industrial production grew in January by 0.9% compared to the same month last year, and posted the first year-to-year growth in manufacturing output in 22 months, going back to March of 2008. Any objections to calling this a V-shaped economic recovery?

At 2/17/2010 10:54 AM,  Anonymous said...

Any objections to calling this a V-shaped economic recovery?

A "V" or "U" on a y/o/y percent change graph shows an "L" (or at least the downward slop followed by a preliminary leveling off at the lower plateau) on the underlying metric.

In other words, the first derivative going positive only means that the decline in the underlying metric has leveled off - it does not show "recovery".

At 2/17/2010 11:19 AM,  Junkyard_hawg1985 said...

Any objections to calling this a V-shaped economic recovery?

I object. As Anon 10:54 points out, we have leveled off. At this point we are up 0.9% following a drop of over 10%. This is a long way from a "V" where both sides of a "V" are the same height.

The second problem I have is that Industrial Production is only a small part of the overall economy. The 1Q09 GDP was down 3.3% vs. 1Q08 whereas industrial production was down well over 10%.

At 2/17/2010 11:33 AM,  gettingrational said...

The recovery is V shaped from no growth and back to growth -- its that simple. No ojection.

At 2/17/2010 11:57 AM,  Anonymous said...

gettingrational,

Get more rational. Look at the title of the graph. It is a y/o/y percent change graph. A small positive number means that we're growing slowly, not that we've recovered. All it shows is the rate of change, not the actual value.

To illustrate: if you have \$100 and you lose 20% over two years, you then have \$80. If your \$80 then begins to grow at 0.9% y/o/y, after 1 year, you will have about \$81. To call a V-shaped recovery is to imply that you have your original \$100 back. You don't. And we don't.

If the graph of industrial production itself showed a "V", then you could say it's a V-shaped recovery in production. As Junkyard_hawg pointed out, production is not the entire economy, and not even an overly large part.

The first derivative of a function has value, to be sure, but it's not the same as the function itself.

At 2/17/2010 12:22 PM,  gettingrational said...

Anon. 11:57 am, there has been much evidence of a V shaped recovery here in addition to Industrial Production. An example is Retail and Food Sales.

Now the question is: robust growth compared to other growing U.S. periods? No, not yet.

At 2/17/2010 12:49 PM,  gettingrational said...

BTW Anon. 11:57 AM, your expamle of the \$100 is showing the loss of assets and not economic growth or loss -- conflation. I know very well that my assets have taken an ass kicking and have not fully recovered.

At 2/17/2010 1:31 PM,  Anonymous said...

gettingrational,

Okay. Change \$100 to some random index of green bean growing or any other index. It doesn't change the fact that the first derivative only shows the rate of change, not the absolute value of the underlying function. Our economy of two years ago with no growth was bigger than today's economy growing at 3%.

We haven't recovered, but annualized rates of change alone won't tell you that.

At 2/17/2010 4:11 PM,  Free2Choose said...

"Our economy of two years ago with no growth was bigger than today's economy growing at 3%."

Anon - I think everyone gets that we are talking about rates of change y/o/y, and not a level of output that existed 2, 3, or more years agao. That's why it's called a "recovery". When things reach a level that existed prior to the recession, we can probably switch to using the word "recovered" (notice the change in suffix).

At 2/17/2010 4:33 PM,  Rien said...

Against year-ago levels which were below sea level, any improvement is exaggerated.

Show us a chart of the LEVEL and see how bad things really are.