Swan Song Of The Central Bankers, Part 5: The Flat Line Does Not Spell Recovery

The punk January industrial production (IP) report brought another reminder that the Fed has stimulated nothing at all on the output/employment prong of its dual mandate.

Indeed, as they celebrate a purported “mission accomplished” full employment recovery and confidently prepare to plow forward with an epochal pivot to QT (quantitative tightening), our Keynesian central bankers have remained absolutely mum on this stunning fact: To wit, there has been no recovery at all in US industrial production, and that’s as in nichts, nada and nugatory.

In fact, January 2018 output in the manufacturing sector was still 2.2% below its December 2007 level, and total industrial production has barely crept forward at a 0.19% annual rate. And if you don’t think that is close enough to zero for government work, just recall what a real historical recovery looks like on the IP front.

During the December 2000 to December 2007 cycle, for example, total IP grew at 1.4% per annum and manufacturing output rose by 1.9% per annum on a peak-to-peak basis. Prior to that during the 1990-2000 cycle, the figures were 4.0% and 4.6% per annum, respectively.

And if you want to dial way back in time to the Reagan-Bush cycle from July 1981 to July 1990, the peak-to-peak growth trend for total industrial production was 2.3% per annum and 2.8% for manufacturing output. And, by your way, that cycle also included a deep recession in 1982 that was only slightly less severe than the 2008-2009 downturn.

In short, when you don’t get anywhere on industrial production over the course of 10 full years—-the Great Recession notwithstanding—you are not succeeding. And while you are bragging, you at least ought to attempt to explain or rationalize what is otherwise a screaming aberration in the modern history of business cycles.

Needless to say, the Fed heads haven’t bothered. While you absolutely cannot build an economy on Pilates instructors and bartenders alone, the Eccles Building has, apparently, simply deleted the entire industrial economy from its dashboard.

Nor is that the half of it. The overall IP stasis since December 2007 compared to the solid trend growth rates for prior cycles cited above actually masks the fact that the internals are even more damning: They show that the Fed’s massive “stimulus” cannot claim credit for even the isolated impulses of growth that have materialized in the industrial economy since the pre-crisis peak.

To wit, domestic production of consumer goods is still 6% below its December 2007 peak. And, as also shown below, production of business equipment has inched forward by only 1% compared to where it was 10 years ago!

In fact, the only thing that has remotely held up domestic output is oil and gas production, which has soared by 78% from December 2007 levels owing to the shale boom.