The latest figures for Industrial Production and Capacity Utilization have now been released. The news is not good. The economy seems to be headed in the wrong direction.
The year-over-year rate of growth of industrial production is now in its eight month of decline. The near-term peak in this growth rate (5.2 percent) occurred in February of this year. It has been downward ever since.
With the new revised figures for the past six months, we find that in May the year-over-year growth rate was 4.7 percent but this dropped to 2.8 percent by August. In October the year-over-year growth rate was 1.8 percent. Capacity utilization in manufacturing hit a near term peak in July 2012 at 79.2 percent of capacity. It has been downhill since then dropping to 77.8 percent of capacity in October.
Some releases claim that the drop-off in October was attributable to Hurricane Sandy, but the storm only really accounted for three days in the month. There may have been some downward effect, but it cannot account for all of the decline. The trend has been toward lower numbers for several months now. Bottom line: the economy is not doing well!
These numbers will just strengthen the resolve of those at the Federal Reserve who believe that the Fed needs to do even more in the way of monetary easing. The economy is just not very strong and the it doesn't seem to be going in the right direction.
Of course, the problem with the weak economy is not the Federal Reserve. Mr. Bernanke now claims that fault lies with the banks because they are not lending enough. Bernanke says the slow recovery is due to cautious banks.
Well, Mr. Bernanke, maybe the banks have some good reasons for being cautious. But, then, you are supposed to know that because you are the Chairman of the Board of Governors of the Federal Reserve System!
The news from Europe is that the continent is now in another recession. This, too, will not help the United States economy to continue to expand, even at a very tepid pace.
The interesting question has to do with the effect this news will have on policymakers in Washington, D. C. Will the news that the economy is even weaker than thought cause government officials to be more flexible in reaching an adequate solution to the "fiscal cliff"? And, what might this mean for the stock market?
This just reinforces my view that the stock market will continue to trend sideways. The economy is chugging along … barely. This is not the environment for strong earnings. It is not the environment for substantial reductions in unemployment … let alone under-employment. It is not the environment for a strong performance of common stocks.
The economy is not doing well, Europe continues to stagnate as its officials continue to kick the policy can down the road, and in the United States our government is playing "Prisoner's Dilemma" games while the Federal Reserve continues to inflate the financial system. This may be the playbook for the next four years!