INDUSTRIAL PRODUCTION

Industrial production is clearly slowing as total output and manufacturing output fell 0.2% in September– the difference between total and manufacturing output is utilities and mining and mining includes oil and gas production. The slowdown was widespread as output of oil dirlling and the information technology sectors both fell. About the only increase was an expansion of auto and light truck production from 7.75 to 7.84 million units. As the chart below shows after rebounding strongly in the early stage of the recovery industrial output is starting to closely followed the pattern displayed in weak recoveries.
My estimate of monthly productivity growth in manufacturing is also weakening sharply as the smoothed year over growth has slowed to 3.4% versus a peak rate of 9.0% in January of this year. Moreover, the smoothed three month growth rate and the unsmoothed monthly increase of only 0.1% in September implies that the slowing of productivity growth is not quickly reversing. Weaker productivity growth is bad for profits growth that historically leads income and employment growth. Weak productivity could imply that manufacturing employment growth was improving. However, the index of manufacturing aggregate hours worked peaked in May at 78.0 as compared to its September reading of 77.3. So on balance, prospects for continued manufacturing employment growth do not look encouraging.

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