Industrial and Manufacturing Production Rebounded Strongly in August
And now, some good news: industrial and manufacturing production rebounded strongly in August
– by New Deal democrat
In the past, industrial production has been the King of Coincident Indicators, since its peaks and troughs tended to coincide almost exactly with the onset and endings of recessions. That weighting has faded somewhat since the accession of China to the world trading system in 1999 an the wholesale flight of US manufacturing to Asia, generating several false recession signals, most notably in 2015-16. But it is still an important coincident measure in the economy.
As with last month, there were significant downward revisions, but the story this month was a strong rebound. Total production was reported higher by 0.8%, and manufacturing production by an even stronger 1.0% (graph normed to 100 as of pre-pandemic high water mark):
On a YoY basis, total production is unchanged, while manufacturing production has risen 0.2%:
In the above graph, I also show the updated YoY real retail sales YoY data (gold), which shows that both, in accord with their short leading status, real sales have anticipated the downward trend in production followed by two years of more or less treading water.
Finally, here is the long term look at industrial and manufacturing production vs. real GDP (gold):
During the 20th century all the way up to the 1980s, when industrial and manufacturing production growth had declined to 0% YoY, the economy was entering or in a recession about twice as often as not. Thereafter right up until the pandemic while there was a marked deceleration in real GDP, a recession did not necessarily occur, most especially in 2015-16.
Here is the post-pandemic view:
With total and manufacturing production trending slightly higher in recent months (per the first graph above) compared with last year, this forecasts a steady real GDP somewhere in the neighborhood of 3% annualized this quarter.
The Bonddad Blog
Domestic factory orders and production vs. real imports as economic forecasting tools, Angry Bear by New Deal democrat
the industrial production report is screwed up by seasonal adjustments which reflect the impact of supply chain issues during the worst of the pandemic years….historically, auto manufacturers have shut down in July to retool for the new models, and hence July’s auto manufacturing index had been boosted by a seasonal adjustment on the order of 30%….because a number of auto manufacturers did not shut down in July during the pandemic years to take advantage of sparsely available parts supply, seasonally adjusted auto manufacturing artificially jumped in July during those years…the effect of those artificial production spikes was to cause the revision the upward July seasonal adjustment for auto manufacturing from around 30% to around 20%, and to similarly reduce the downward August seasonal adjustment to auto manufacturing from around 30% to 20%…with the July auto shutdown for retooling back to normal for this year, the pandemic impacted seasonal adjustments resulted in what the Fed reports as “a recovery in the index of motor vehicles and parts, which jumped nearly 10 percent in August after dropping roughly 9 percent in July“, as if they have no idea as to why that happened….without that distortion, manufacturing rose 0.3% in August and industrial production over the two months in question would be close to unchanged…
seeing this happen with this release has me wondering what other seasonal adjustments have been skewed by distortions from the pandemic years….we are left with no option but to take every economic release which had pandemic era impacts with a handful of grains of salt..
RJ:
That is interesting information.
I worked in the Tiers for about twenty years for Yazaki and other companies. They pay was good as was the benefits. We had economic shutdowns too (2008) which heavily skewed demand. After the economy opened up again, the inventory to support it was not present, demand was instant, and the supporting tiers (2 and 3s) to the Tier 1s increased prices by as much as 20%. Increased pricing does not for throughput or supply. Labor input is small anyway. It was rent-taking. They could do it because they could do it. It would be weeks or months to recertify a new supply. The old one might have been picked by the OEM. So, we ate it and I kept it on my list of things to remember.
Interesting the OEMs could not gradually increase supply needs or support the Tiers with a small demand to build inventory during the pandemic. They still never learn.