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When Down Is Up - Industrial Production

I have observed the headless GDP models have reacted to the data showing Industrial Production was down 0.3% in January 2017.

It seems that utilities were the wobble this month as both manufacturing and mining improved. This report actually is relatively strong. The manufacturing surveys all predicted improvement - and it was delivered. As there was significant backward revision in the last six month's of data, the best way to view this is the 3 month rolling averages which declined but is in expansion..

  • Headline seasonally adjusted Industrial Production (NYSE:IP) was down 0.3 % month-over-month and unchanged year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growth decelerated 0.6 % month-over-month, and is up 0.1 % year-over-year.
  • The unadjusted year-over-year rate of growth accelerated 0.2 % from last month using a three month rolling average, and is up 0.1 % year-over-year.
  • The market was expecting (from Bloomberg / Econoday):
Headline Seasonally Adjusted Consensus Range Consensus Actual
IP (month over month change) -0.6 % to 0.2 % +0.0 % -0.3 %
IP Subindex Manufacturing (month over month change) -0.1 % to 0.4 % +0.2 % +0.2 %
Capacity Utilization 75.0 % to 75.6 % 75.5 % 75.3 %

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was up 0.2 % this month (up 0.3 % year-over-year), mining up 2.8 % (up 0.4 % year-over-year), and utilities were down 5.7 % (down 2.6 % year-over-year). Note that utilities are 10.8 % of the industrial production index, whilst mining also is 10.8 %.

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 near or below zero - it is currently in expansion and trending up.

Economic downturns have been signaled by only watching the manufacturing portion of Industrial Production. Historically manufacturing year-over-year growth has been negative when a recession is imminent.

Seasonally Adjusted Manufacturing Index of Industrial Production - Year-over-Year Growth

Seasonally Adjusted Capacity Utilization - Year-over-Year Change - Seasonally Adjusted - Total Industry (blue line) and Manufacturing Only (red line)

The real surprise with Industrial Production is that capacity utilization declined. It remains on a long term improving trend - but there was a stumble this month.

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