The May Numbers For Industrial Production: Less Bad

by: John M. Mason


There is hope out there that the economy is picking up some speed in the second quarter of 2016, looking for justification that the economy will grow faster this year.

Year-over-year, the new industrial production figures still show negative growth through May, it's just that the April and May numbers are less worse than the first-quarter numbers.

However, capacity utilization numbers, consistent with declining labor force participation numbers, show that economy's use of resources is still becoming more slack.

Many analysts have been hoping for some sign that the US economy is picking up some speed in the second quarter of 2016, anticipating that there would be a further increase in the rest of the year.

Year-over-year, the May growth rate of industrial production in the United States was at a negative 1.4 percent, slightly worse than the negative 1.2 percent the economy registered in April.

However, this is better than the 1.6 percent, year-over-year decline that occurred in the first quarter of the year.

The growth of industrial production declined throughout 2015 as it achieved a 2.4 percent rate of growth in the first quarter, a 0.4 percent increase in the second quarter, and a 0.1 percent rise in the third quarter.

In the fourth quarter of 2015, the year-over-year rate of change in industrial production was a negative 1.6 percent.

With the April and May numbers, analysts hope that there is some indication that the decline is bottoming out.

Unfortunately, the capacity utilization figures do not give us the same story.

Capacity utilization in May continued the drop that has continued now for more than one year.

Capacity utilization came in at 74.9 percent in May, down from 75.3 percent in April, 75.4 percent for the first quarter of 2016, 75.8 percent for the fourth quarter of 2015 and 76.6 percent in the third quarter. The year 2015 started off with capacity utilization at almost 78.0 percent.

This drop has followed the continuing decline in the labor force participation rate that hit 62.6 percent in May, a 38-year low. This participation rate has been falling steadily over the past several years.

The US economy just does not seem to be in a good place. But, most other developed countries seem to be facing similar problems. And, with all the other problems that exist in the world, the optimism for the future does not seem to be very robust. Yet, analysts keep on looking for "green shoots."

Given that the economy has only been increasing at just over a 2.0 percent compound rate of growth for the seven years of the current recovery, and given that the improvement in labor productivity is so low, and given that businesses are not very interested to invest in capital goods, new plants and equipment to produce more goods and services, continuing to hope for an increase in economic activity from the current pace is just wishful thinking.

Even the Federal Reserve seems to think so.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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