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Industrial production posted a handsome rebound in August after July's essentially flat performance, the Federal Reserve reports. The 0.4% increase for last month is slightly better than The Capital Spectator’s average projection for August, which was published on Friday. More importantly, last month’s advance translates into a significantly stronger year-over-year gain of 2.7% through August, up sharply from the 1.4% annual pace in July. That’s an encouraging sign that industrial output isn’t sliding into a dark phase of deceleration after all, even if recent history appeared to be telling us otherwise.

Note, too, that the manufacturing component enjoyed an even-stronger round of growth last month. Indeed, manufacturing activity expanded by 0.7% in August—the fastest pace since last December.

The big news from a business cycle perspective, however, is that the trend in industrial production revived with an impressive turnaround. Industrial output was higher last month by 2.7% vs. the year-earlier level. That’s the fastest annual rate of growth since March.

It’s premature to say that the recent slump in industrial activity has passed, although it sure looks like it did, based on today’s data. But we’ll have to wait a month for a stronger signal. If the annual pace holds on to today’s progress, optimism on this front will solidify. Keep in mind that increased auto production is a key reason behind today’s good news. Production of motor vehicles and parts advanced more than 5% last month, reversing July’s 4.5% drop, the Fed explains. Auto-related activity is volatile in the short run, which is why can't read too much into today’s release. Nonetheless, it’s perfectly reasonable to look ahead to next month’s industrial production report with brighter expectations (or a bit less dread).

Source: Industrial Production Rebounds Sharply In August