By New Deal Democrat
A few weeks ago, I suggested a hurricane workaround for industrial production. That approach was to average the four regional Fed indexes excluding Dallas, add the Chicago PMI, and finally discount for the unusual strength this year in these regional indexes versus production.
Here was my conclusion:
The average of the 5 is 22.9.
Dividing that by 5 gives us +.5.
Subtracting .3 gives us +.2.
We can be reasonably confident that underlying trend in industrial production in September, despite the hurricanes, has been positive.
That approach was borne out on Tuesday when overall September Industrial Production was reported at +0.3%, with manufacturing production up +0.1% as shown in the graphs below.
First, here's the longer-term view. Note that the decline in 2015 was due to weakness confined to the oil patch:
Here is the close-up of this year:
That's the good news. The bad news, of course, is that even with this improvement, the big (revised) August decline of -0.7% in production and -0.2% in manufacturing has not been overcome, and production is still below where it was this spring.
If we were to apply the same workaround for August as we did for September, however, the forecast would have been a manufacturing reading of +0.2% for that month as well. That would be enough to put us slightly above where manufacturing production was earlier this year. Indeed, the Fed suggested that but for the hurricanes, September would have been +0.25% higher.
So despite the softness in industrial production the past few months, I believe the overall trend remains slightly positive and not suggestive of any underlying downturn in the economy.
- From Bonddad
Something to remember about industrial production is that, in this cycle, it is the weakest coincident indicator. Consider the following two charts:
