Industrial Production Grew 3.1% Over the Past Year, Consistent With Trend

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The Fed reported that Industrial Production rose by 0.4% in September on a seasonally adjusted basis after declining in August partly due to Hurricane Isaac. The September increase was in line with the consensus estimate of an increase of 0.2%. Having seen a number of economic reports for September that beat their expectations, economists guessed right on this one.

The actual, not seasonally adjusted number declined by 0.6%. Declines are normal for September.  September 2011 was down .7% and down 0.9% in 2010.  The average September change over the past 10 years was -1.2%.

The index remains on trend with year to year growth of 3.1% in September. After the initial recoil from the depth of the recession in 2009, year to year growth rates have trended between +2.9% and +5% since mid 2011. The economy appears to be neither slowing nor accelerating by this measure.

Note: The boilerplate on why I don’t use seasonally adjusted (SA) data.

With Europe in a monster meltdown and China in a slowdown, this is a good number. That’s because the US, as the Last Ponzi Game economy standing, is benefiting from all the turmoil and capital flight from Europe and China. Wealthy European and Chinese individuals and institutions who are panicked by the turmoil, buy US Treasuries (or other US assets). The following week the Treasury spends that money, and that helps to boost US industrial production.

The Fed, Industrial Production and Stock Prices - Click to enlarge

The Fed, Industrial Production and Stock Prices  - Click to enlarge

Stock prices had been heading toward an overbought level relative to industrial projection, but that stopped in 2011. The ratio of the S&P 500 to the Industrial Production Index has turned flat in response to the Fed holding the SOMA flat for the past year. Stocks may not be expensive relative to the economic data, but they’re not cheap either. If they should run to reach the 2007 highs from here, a gain of around 10%, they would be approaching a historical extreme, but if industrial production continues to expand at the current pace, there would be room for stocks to reach new highs.

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Electric Power Generation and Distribution

Electric Power Generation - Click to enlarge

Electric Power Generation – Click to enlarge

I like this indicator because it is a measure that covers everything, not just manufacturing. It is a good combined measure of both business activity and personal consumption activity.

The long term view of this indicator suggests that the economy has done nothing and is even declining in the past year. However, there may be another explanation.

The year to year data shows a decline of 1.3% from last September. That’s an improvement from the 4.1% drop in August. The sharp declines in the summer months could be due to cooler temperatures on average versus 2011. Some of the decline may also be due to increasingly energy efficient lighting, air conditioning and refrigeration.  The changeover to compact fluorescent lighting may be a contributing factor. The 12 month moving average shows a leveling in the rate of decline. Other economic indicators reflect slow growth. For now I will view this indicator as a sign that Americans are wasting less electricity, rather than a sign of declining economic activity.

This post is an excerpt from the permanent chart page on Industrial Production which you can bookmark for future reference, updated when new data becomes available. 

Other Economic Charts 

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