Daryl Montgomery
submits:
The Fed reported that industrial production was up 1.0% in July
and this got all the media headline attention. Stocks rallied on
the bullish news implying economic recovery. Buried in the coverage
was that June's number, originally reported as an increase, was
downwardly revised to
minus
0.1%.
The government's handling and media reporting of the industrial
production numbers are similar to many other economic reports. Good
news is reported in the initial release. Mainstream media gives the
good news big headlines and coverage that is so glowing that it is
amazing there aren't cheerleaders in the background waving brightly
colored pompoms and shouting 'Go US economy, Go US economy, Rah,
Rah, Rah' while jumping up and down (By the way, I am expecting
CNBC to steal this idea. I can see the top executives hitting
themselves in the head right now and saying, "Why didn't we think
of that?"). The downward revisions, and sometimes there are
several, that come later on and indicate things aren't so good or
there is even a decline taking place get minimal and sometimes no
media attention. There's no need for a propaganda ministry when the
government has a deal like this with the mainstream media.
Both the June and July industrial production reports have the
additional problem of unusual situations that made the numbers
better. The very hot weather in June spiked the utility component.
In July, auto plants didn't shut down for their usual annual
retooling. Because of this, the automotive products component of
industrial production increased 8.8%. Most of that in turn was "due
to large increase in light truck assemblies". Looking elsewhere in
the report it can be seen that 'Output of Business Equipment' was
up 1.8%. This increase was driven by the transit equipment
sub-component that was up 6.3%, an "increase that in large part
represented the gain in light truck assemblies" according to the
report. So without the big increase in light truck assemblies
(which impacted a number of components), industrial production
wasn't strong in July.
The report did claim that most components of industrial
production were up however. The exceptions were food, beverages,
clothing, appliances .... you know, things that are necessities.
Well, what is a better indicator of the state of the U.S. economy,
a 1.1% increase in the defense component due to bigger production
of military aircraft or the American consumer being able to buy
food and clothing? This is apparently an example of the 'uneven
recovery' that economists speak about. It doesn't prevent optimists
from seeing the light at the end of the tunnel for the weak economy
based on July industrial production numbers. Pessimists are seeing
the light (truck assemblies) at the end of the tunnel instead.
Disclosure:
No positions.
See also
Basel III: The Snake in the Grass
on seekingalpha.com