Wednesday, June 16, 2010

Factory Output Continues to Expand

ABC NEWS --Industrial production rose 1.2 percent in May as manufacturing remained a key engine of the economic recovery. The Federal Reserve says output at the nation's factories, mines and utilities rose over April's 0.7 percent increase. The industrial sector's gains reflect the growing strength of the recovery.

MP: On an annual basis, industrial production increased 7.6% in May compared to last year, which is the largest annual gain since January 1998 (see chart).

Update: Bottom chart above shows the industrial production index, by request.  The index reached an 18-month high in May of 103.5, the highest level since November 2008.  Separately, capacity utilization reached a 19-month high in May of 74.7%, the highest since October 2008.    

Update: See Scott Grannis' related post U.S. industrial production in a solid recovery, where he comments:  "U.S. industrial production has risen at a 8.8% annualized pace since hitting bottom in June 2009. At this pace industrial production will have completely recovered to its former highs in 12 months."

Note: If that happens it will be a much faster recovery than the period following the 2001 recession, when it took industrial production almost 4-and-a-half years to recover from the June 2000 high of 104.25.  It wasn't until October 2004, 52 months later, that factory output exceeded 104.25.  Scott adds: "The pace and the magnitude of the current recovery both exceed that of the recovery from the 2001 recession. I just don't see why the gloom and doom persists."

Update from First Trust: "Manufacturing continues to lead the V-shaped recovery. Since the low in June 2009, manufacturing production is up at an 8.8% annual rate, which is faster growth than even during the tech boom of the late 1990s. We expect rapid gains in production to continue."


At 6/16/2010 9:19 AM, Anonymous morganovich said...

after last year which was the biggest drop.

it's still way down from 2008.

up 7.6 after down 13 is still down 6.5 from start.

again, you are presenting these charts in a very misleading way. a chart of actual output or better still, area under curve would be better.

At 6/16/2010 9:42 AM, Anonymous Anonymous said...

ECRI long leading indicators now declining. Doesn't that mean this is close to peaking -- if not the actual peak?

At 6/16/2010 11:08 AM, Blogger bobble said...

illustrating what morganovich says above:
from calculated risk

At 6/16/2010 11:26 AM, Anonymous morganovich said...

wasn't a great deal of this due to utilities increases?

also, not much of a housing number...

WASHINGTON - Home construction plunged last month and building permits also fell, the latest signs that the construction industry won't fuel the economic recovery.

Builders are scaling back now that government incentives have expired. The biggest evidence of that trend: single-family homes tumbled 17 percent, the largest monthly drop since January 1991. The struggle in the housing industry is a concern for the broader economy because fewer homes mean fewer jobs across various sectors.

Overall new homes and apartments fell 10 percent in May to a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. April's figure was revised downward to 659,000. Applications for new building permits — a sign of future activity — sank 5.9 percent to an annual rate of 574,000. That was the lowest level in a year.

At 6/16/2010 11:32 AM, Anonymous morganovich said...


that's a great chart, thanks.

looks like we've lost about a decade.

At 6/16/2010 12:04 PM, Anonymous morganovich said...


do you know if those are real or nominal figures?

At 6/16/2010 12:32 PM, Anonymous morganovich said...

the 2002 recovery was the most tepid in a generation and industrial output had been falling for nearly a year prior to "official" recession. i'm not convinced that's the correct benchmark to use.

compare recovery time to 1992 and this looks less impressive. there, we were nearly fully recovered in a year.

in 1983, it was about 9 months to recover from a recession of comparable length to this one.

1981, 6 months.

1976 took more like 18 months (more like now) but was considered a weak recovery.

1971, recovered in one year.

cherry picking the easiest post war comp by using the most tepid recovery in the period for a baseline seems to me to be the wrong way to look at it.

measured vs a more typical recovery, this one is quite weak.

not sure how it looks vs

At 6/16/2010 3:42 PM, Anonymous Anonymous said...

Another chart for morganovich.

At 6/16/2010 4:18 PM, Anonymous morganovich said...


that's a really excellent chart. thanks.

who put it together?

it pretty much demolishes the "v" shaped and "strong recovery" claims.

11 months before the trough industrial production was around 115, 11 months after, it's 107.

in the average of the previous severe recessions, industrial production was already significantly above the levels before the decline began after 11 months which is to say recovery was complete and production was higher than before.

in our current case, we are not even halfway there. (107 vs 117)

so, how can anyone call this "v" shaped or "strong" in the face of that evidence?

At 6/16/2010 4:39 PM, Anonymous Anonymous said...

who put it together?

spencer @ Angry Bear. He's already given Carpe Diem grief today on the Minimum Wage thread.

At 6/17/2010 9:01 AM, Anonymous morganovich said...

should unemployment claims being going up 11 months into a "V" shaped recovery?

WASHINGTON (MarketWatch) - First-time applications for state unemployment benefits rose by 12,000 last week to a seasonally adjusted 472,000, the Labor Department reported Thursday, providing further evidence that U.S. labor markets remain very weak.

The previous week's initial claims were revised higher by 4,000 to 460,000 as more complete data were collected. Read the full release on the Labor Department's website.

The jobless claims report shows that the level of layoffs, while down from the peak a year ago, is too high to be consistent with robust job growth. The economy is creating jobs, but too few to bring the unemployment rate down meaningfully.

At 6/17/2010 9:35 AM, Anonymous morganovich said...

apparently manufacturing not leading the way in philly?

"Here is the Philadelphia Fed Index released today: Business Outlook Survey.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased notably from a reading of 21.4 in May to 8.0 in June. The index, which had edged higher for four consecutive months, fell back to its lowest reading in 10 months.

Until this month, firms’ responses had been suggesting that labor market conditions were improving, but indexes for current employment and work hours were both slightly negative. For the first time in seven months, more firms reported a decrease in employment (18 percent) than reported an increase (17 percent).

The index has been positive for ten months now, but turned down "notably" in June.

This might suggest that growth in the manufacturing sector is slowing. Especially concerning is the slightly negative employment index. "

At 6/17/2010 9:40 AM, Blogger Junkyard_hawg1985 said...

"should unemployment claims being going up 11 months into a "V" shaped recovery?"


Right now unemployment claims continue to track the 1980-82 "W" recession extremely well. Unemployement claims rose from just over 300,000/wk to over 600,000 in an 84 week period. They then trended down by about 200,000/wk. They then stabilize at this level for ~7 months. If the claims follow the last "W", then you will see them jump back over 500,000 in about a month on their way back to about 700,000/wk.

At 6/17/2010 10:10 AM, Anonymous morganovich said...


that double dip from the early 80's is a really tricky comparison to make. i see what you're saying, but the second (and deeper) dip in 81-2 was from volcker cranking up interest rates to kill inflation.

seems unlikely we'll see that here, though an exogenous shock from europe or our own banking system or government might cause a similar problem.

At 6/17/2010 11:04 AM, Anonymous Anonymous said...

Again for you morganovich, the Philly Fed chart.

You should get out more often.

At 6/17/2010 1:10 PM, Blogger Junkyard_hawg1985 said...


After financial panics, it is common to have an initial dip followed by a secondary dip. A classic example was the panic of 1837. There was a recovery in 1838-39. Then the second dip came which forced 9 states to default on their debt by 1842. 5 states ultimately just repudiated their debts (MI, FL, MS, AR, LA). Our nation is following the actions of these 5 states. These states more than doubled their debt between 1837 and 1842. They did it bailing out banks and cranking up spending on infrastructure (canals, etc).

The panic of 1893 had an initial shock with a huge increase in unemployment in 1894. Unemployment fell back some in 1895 before rising again in 1896-97.

2008 was a financial panic and we have not yet cleared out the debt asset bubble.


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