Industrial Production: July Up, But June Is Now Negative

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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



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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