Wednesday, June 17, 2009

Industrial Production Blows

From the Fed:

Industrial production decreased 1.1 percent in May after having fallen a downward-revised 0.7 percent in April. The average decrease in industrial production during the first three months of the year was 1.6 percent. Manufacturing output moved down 1.0 percent in May with broad-based declines across industries. Outside of manufacturing, the output of mines dropped 2.1 percent, and the output of utilities fell 1.4 percent. At 95.8 percent of its 2002 average, overall industrial output in May was 13.4 percent below its year-earlier level. The rate of capacity utilization for total industry declined further in May to 68.3 percent, a level 12.6 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982.

If there is one figure that can blow the "things are getting better" argument it's the latest industrial production figure. Now -- the overall month to month chart is still encouraging (click on all images for a larger image):

Notice the rate of decline has decreased over the last six months save the current month. That means the current month could be a "blip" on the way to things getting better. But it also means we have to keep a very strong eye on all the industrial figures for the next few months. In addition, there has already been a ton of damage done to overall industrial production. Consider the following charts:

Notice that we've lost all production gains of the previous expansion. In addition

Utilization is at multi-decade lows. That means when the economy starts back up there is little incentive for business to engage in any capital expansion as their first priority will be to use the big slack in their production systems.

Again -- if there is a set of statistics that could really screw us up, this is it.