- by New Deal democrat
If housing permits and starts are in the forefront of long leading indicators, then industrial production and its components are among the most important coincident indicators, even if they are not as important as they were back when the US was the world’s industrial powerhouse.
And if earlier this morning we saw housing continue its neutral trend, with industrial production we saw the goods-producing sector of the economy continue its upward one. To wit: headline production (blue) increased 0.2% in July to a new post-pandemic high, joined by manufacturing production (red) which increased 0.1%. Meanwhile, electric and gas utility production (gold), most closely aligned with AI data center construction, increased 0.7%. The below shows all three normed to 100 as of just before the pandemic:
You can see just how much utility construction has outpaced the manufacturing sector as well as the headline number in the past few years.
On a YoY basis, headline production was up 1.1%, its manufacturing component up 1.3%, and utilities up 0.7%:
There are two important takeaways from this month’s data: (1) manufacturing continues to improve at trend. There is no sign of it slowing down, but (2) the utility component most closely aligned with the construction of AI data centers shows significant signs of deceleration this year. The second may be critically important, since it is the driver of AI stock price gains and further downstream the spending driven by the wealth effect based on those gains.