Forget the Obituaries - The U.S. Economy is Alive and Well

Monthly industrial production for January was released Friday by the Federal Reserve, and it was 2.3% above its January 2007 level (see graph below, click to enlarge). Industrial production is important because it is one of the recession-indicating variables watched by the National Bureau of Economic Research to determine the onset of a recession. 

Comments:

1. Calculated on an annual basis from the same month in the previous year, January 2008 marked the 55th consecutive month of positive growth in industrial production. The last time annual growth in industrial was negative was June of 2003, more than 4.5 years ago (see chart above). 

2. January's 2.3% annual growth in industrial production was below the long-run trend of 2.9%, possibly indicating a mild slowdown in economic production, but certainly nowhere the negative growth rates in output associated with a recession, see the circled, shaded areas of recession on the graph above. 

3. Since the summer of 2007, there has been a slight upward trend in the growth rate of output, further suggesting that the U.S. economy has not entered a recession.

Comments

[deaverb:]

Quite right. Employment continues to grow; unemployment claims are moderate. Productivity is up. People overlook the fact of the big movement to 1099 contractors from W2 employees. Inevitably that gets somewhat lost in the stats. Moderate doesn't make headlines; "recession" or "boom" do.....

2008 Feb 17 10:20 AM

[Will Rahal:]

There are many indicators pointing to more than a "moderate" slowdown.
To make matters worse, inflation is re-accelerating. This combo is not good. The financial markets reflect this.
I charted the S&P-500 performance vs. CPI and the correlation is clearly negative.

2008 Feb 17 11:29 AM

[Go figure:]

Since financials make up such a large percentage of the S&P, they can and probably will have a negative overall effect on the index average. That's the best reason I can think of for not investing in the S&P index whether a fund or ETF.

Mark needs to go down the hall and talk to Sam Kirtley who is forecasting a "severe recession". Not that that can not happen, but from the chart Mark shows above, many more things are going to have to get worse before it happens. I guess that is what makes the market what it is. Someone wants to buy what you are selling.

2008 Feb 17 11:40 AM

[Go figure:]

Will, in checking out your chart, I guess I don't see the correlation. From October 2005 (a high point on your chart) to the end of 2006 (closer to the bottom on the chart) the S&P gained 22%. Considering your current chart is again near the high, that would indicate another healthy run is in store.

I guess that's why there is not any one chart that tell the story.

2008 Feb 17 11:47 AM

[calvino:]

Great news, the cold snap led to higher hours at the utilities. Refiners increased throughput a couple of percent to sell more $3 gas. Boeing spiked deliveries that were booked two years ago. Endless war spending adds to the deficit. We are not in college professor, this is real money earned by real people. But massage the data a bit more, if you must.

2008 Feb 17 12:43 PM

[elfie:]

non bank balance sheets are strong
employment is stable
worldwide growth is ongoing (so much to do)

corn based enthanol production is hurting inflation and is a risk
oil is a risk (ashame govt can't emphasis conservation)
healthcare is crippling out competitiveness (health lifestyles are no promoted as much as they should be)

as long as we don't see large scale announcements of layoffs (ie. beyond banks and auto manufacturers) we will unlikely have inflation

lower interest rates will prevent recession as well

2008 Feb 17 12:51 PM

[Leo S:]

Are the dollars in the underlying data series nominal or inflation-adjusted?

2008 Feb 17 01:37 PM

[Gaucho:]

Read Seaking Alphas new comments by Gary Dorsch. The FED and other G7 banks have stated that they will lie about economic data so that the markets will stay high. They do not want to see the real-estate and the stock markets crash at the same time.

Do you really believe that the inflation rate is around 2 %. The economic data on spending recently released showed .3% for January. They forgot to take out inflation published lies or the real data. You also need to back out the 20% plus increase in fuels and the huge increase in food. Take these inflationary numbers out then you have a huge downward spiral in spending.

2008 Feb 17 11:24 PM

[elwind45:]

The pie in the investment sky was the idea the subprime borrower was getting a great deal. Homeowner getting rich quick. Reality is proving this assumption to be wrong. Many of these individuals pulled in horns long before current malaise timeline. The timeline is being viewed wrongly. Much of the troubles have been worked out. Much of the reported troubles are now effect (not cause) in nature. The bears are strong and misleading the short term investor. Now is the time middle of winter buy buy buy... This downturn is in its 7th innings! longterm growth stocks longer term winners. Production will always find a reason, recovery was thankfully never that great!

2008 Feb 17 11:56 PM