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Industrial Production Growth Continues To Evaporate. FOMC Believes Economy Moderately Expanding?

I boggles my mind to see that the Federal Reserve's FOMC believes "that economic activity is expanding at a moderate pace". In my world as an analyst, I am seeing weakness throughout most of the data sets I review. Take Industrial Production.

The headlines say seasonally adjusted Industrial Production (NYSE:IP) declined (the manufacturing portion of this index was also down month-over-month). Consider this a soft data point that was expected - but it is marginally worse than what was expected.

  • Headline seasonally adjusted Industrial Production decreased 0.4 % month-over-month and up 0.9 % year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growthdecelerated 0.6 % month-over-month, and is up 1.2 % year-over-year.
  • The unadjusted year-over-year rate of growth decelerated 0.1% from last month using a three month rolling average, and is up 1.4 % year-over-year.
  • The market was expecting (from Bloomberg):
Headline Seasonally Adjusted Consensus Range Consensus Actual
IP (month over month change) -0.7 % to 0.5 % -0.2 % -0.4 %
Capacity Utilization 77.5 % to 78.5 % 77.8 % 77.6 %
IP Subindex Manufacturing (month over month change) -0.5 % to 0.3 % -0.3 % -0.5 %

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.5 this month (up 1.4 % year-over-year), mining down0.6% (down 3.2 % year-over-year), and utilities were up 0.6 % (up 3.2 % year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.

Comparing Seasonally Adjusted Year-over-Year Change of the Industrial Production Index (blue line) with Components Manufacturing (red line), Utilities (green line), and Mining (orange line)

Unadjusted Industrial Production year-over-year growth for the past 2 years has been between 2% and 4% - it is currently 0.9 %. It is interesting that the unadjusted data is giving a smooth trend line.

Year-over-Year Change Total Industrial Production - Unadjusted (blue line) and the Unadjusted 3 month rolling average (red line)

Industrial production is expanding near the lowest rate since the beginning of the recovery from the Great Recession. I will point out that I currently see no recessionary elements in the data - but I see softness everywhere.

Other Economic News this Week:

The Econintersect Economic Index for September 2015 improved from last month's lowest index level since April 2010. The tracked sectors of the economy generally improved somewhat or the growth remained unchanged. Still, our economic index has been in a long term decline since late 2014.

The ECRI WLI growth index is now in positive territory but still indicates the economy will have little growth 6 months from today.

Current ECRI WLI Growth Index

The market was expecting the weekly initial unemployment claims at 270,000 to 280,000 (consensus 275,000) vs the 264,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 275,750 (reported last week as 275,750) to 272,500. The rolling averages generally have been equal to or under 300,000 since August 2014.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

Bankruptcies this Week: Black Elk Energy Offshore Operations, Samson Resources, Privately-held Hovensa

Please visit our landing page for all of our analysis this week.

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