Industrial Production Still Below 2007 But Trend Is Up Following Massive Fed Pumping

The Fed reported on Friday that Industrial Production rose by 0.7% in February on a seasonally adjusted basis. January’s data was revised up from a decline of 0.1% to a gain of 0.1%.  The consensus estimate was for an increase of 0.4%. This is another in a series of instances going back to last September where economists have underestimated the strength of the economy.

The actual, not seasonally adjusted number rose by 0.6% month to month and was up 2.7% year to year, which was slightly stronger than the January year to year gain of 2.5%. Month to month changes in February have varied over the past 10 years. There’s no seasonal pattern evident.  In 2012 February was up 0.4% and in 2011 it was down 0.8%.  The average February change over the past 10 years was a gain of 0.4%. This year’s gain was better than average.

The “good news” must be kept in perspective however. Industrial production levels remain below 2007 and even early 2008 levels.  US population has grown by 5% since then, and the Fed has pumped trillions into the financial system, and US industry is producing less now than it did 6 years ago.

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

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

Stock prices are nearing the peak level they reached  relative to industrial projection in 2007.  As the Fed continues QE I would expect both to move more or less together. There’s no guarantee that the ratio will stop rising at 15.5 like it did in 2007, however. At that time the Fed had stopped growing the SOMA, which it had grown 5% annually since 2002. In the second half of 2007, the Fed actually began withdrawing funds from SOMA to pay for the TAF and other emergence alphabet soup programs that it cooked up in 2008.

By shrinking the SOMA in 2007 and 2008, the Fed starved the Primary Dealers of the cash they needed to keep the game going, and both the stock market and economy crashed. The situation is exactly the opposite this year as the Fed adds a net of $85 billion a month to SOMA through gross purchases from Primary Dealers of $115-130 billion per month In 2007 when this indicator was peaking along with the stock market, the Fed had already pulled the plug on growing the SOMA. That’s what ended the bull market, not the fact that stocks were extended. I would expect something similar to end this bull move.  But this is likely to continue for as long as the Fed perceives that there’s no threat from inflation, and at the same time the unemployment rate stays sticky above  the Fed’s 6.5% target.

See The Conomy Game- The Legend of Bennie The Beard, Henry the Hitman, and the Gangbankster Dealers

This report is excerpted from the permanent charts page on Industrial Production and Electric Power Generation. 

Economic Charts

Follow my comments on the markets and economy in real time @Lee_Adler on Twitter!

Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!


Sign Up To Receive Free Wall Street Examiner Email Bulletins

Lee AdlerGet a “heads up” on these lively, informative commentaries on the latest economic and financial data.

You will receive one or more free e-letters each week featuring an excerpt from a current Wall Street Examiner Professional Edition report or from an exclusive report on current economic data releases to help you to cut through the media spin and give you a clear picture of what’s happening  in the markets and the economy.

Thanks for joining me in the search for reason and clarity in this treacherous environment!


View email bulletins archive


Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

Leave a Reply