Industrial Production

By Spencer

Industrial production only increased 0.1% in October, from a previosly estimated 98.5 to 98.6.
But I suspect this number was biased downward and will be revised higher.

As the chart shows, this changes the impression the previous reports had given that this was a normal to strong recovery in industrial output to one that it is a weak recovery.

A primary reason industrial production appears so weak is that October auto and light truck output fell to 6.83 million vehicles as compared to 7.15 million in September and a cyclical low of 4.05 million in June. However, as the production of all items excluding autos and high technology was unchanged in October the weakness appears to be widespread.

However, I am suspicious that this report overstates the weakness and will be revised up as other information is included and revised data is reported.

Much of the initial estimates of monthly industrial production data is based on electricity consumption data. However, the national average temperature days for October 2009 were extremely low at only 50.8 degrees Fahrenheit. In a quick check of my data base this is the second lowest October reading on record going back to 1921. The lowest was 49.4 degrees in 1925 and the only one I saw below 50 — the highest was 60.0 in 1963. The norm is around 55 degrees so the October temperature days was some 10% below normal. This strongly implies that the electricity usage would have been significantly below normal in October and consequently the industrial production data estimates are undoubtedly biased downward.