- by New Deal democrat
This is the second of 5 graphs to watch in 2016. Yesterday I wrote about the yield curve.
The big story of last year was the impact of the super-strong US$, which rose 20% against some major trading partners between July 2014 and February 2015, generally trending more sideways since:
The result was a downturn in industrial production, creating a shallow industrial recession, which to date has been overbalanced by a continuing expansion in the domestic US consumer-driven economy, led by housing and cars.
Has the strengthening of the US$ run its course? Or will tightening by the Fed drive the value of the US$ even higher, perhaps enough to overcome the service sector?
Here is the graph I will be watching: the YoY% change in the trade weighted US$ (blue) vs. the YoY% change in industrial production (red):
As you can see, industrial production tends to move inversely to the US$, with a slight lag. The effects of a big move tend to dissipate after a year or so of stability. If the US$ stabilizes in 2016, so most likely will industrial production. If the US$ continues to strengthen, the industrial recession will deepen, possibly overwhelming services.
The big story of last year was the impact of the super-strong US$, which rose 20% against some major trading partners between July 2014 and February 2015, generally trending more sideways since:
The result was a downturn in industrial production, creating a shallow industrial recession, which to date has been overbalanced by a continuing expansion in the domestic US consumer-driven economy, led by housing and cars.
Has the strengthening of the US$ run its course? Or will tightening by the Fed drive the value of the US$ even higher, perhaps enough to overcome the service sector?
Here is the graph I will be watching: the YoY% change in the trade weighted US$ (blue) vs. the YoY% change in industrial production (red):
As you can see, industrial production tends to move inversely to the US$, with a slight lag. The effects of a big move tend to dissipate after a year or so of stability. If the US$ stabilizes in 2016, so most likely will industrial production. If the US$ continues to strengthen, the industrial recession will deepen, possibly overwhelming services.
