The headlines say seasonally adjusted Industrial Production (IP) improved. The year-over-year data remains in contraction – so improvement is always relative.

Headline seasonally adjusted Industrial Production (IP) increased 0.7 % month-over-month and down 1.1 % year-over-year.

Econintersect‘s analysis using the unadjusted data is that IP growthaccelerated 1.6 % month-over-month, and is down 0.7 % year-over-year.

The unadjusted year-over-year rate of growth accelerated 0.3 % from last month using a three month rolling average, and is down 1.6 % year-over-year.

The market was expecting (from Bloomberg):

Headline Seasonally Adjusted Consensus Range Consensus Actual IP (month over month change) 0.0 % to 0.6 % +0.2 % +0.7 % Capacity Utilization 74.5 % to 75.2 % 74.9 % 75.4 % IP Subindex Manufacturing (month over month change) 0.0 % to 0.3 % +0.2 % +0.3 %

IP headline index has three parts – manufacturing, mining and utilities – manufacturing was up 0.3 % this month (up 0.4 % year-over-year), mining down 2.3 % (down 13.4 % year-over-year), and utilities were up 5.8 % (up 0.4 % year-over-year). Note that utilities are 10.6 % of the industrial production index, whilst mining is 15.5 %.

Comparing Seasonally Adjusted Year-over-Year Change of the Industrial Production Index (blue line) with Components Manufacturing (red line), Utilities (green line), and Mining (orange line)

Unadjusted Industrial Production year-over-year growth for the past 2 years has been between 2% and 4% – it is currently in contraction.

Year-over-Year Change Total Industrial Production – Unadjusted (blue line) and the Unadjusted 3 month rolling average (red line)

z ip3.PNG

Economic downturns have been signaled by only watching the manufacturing portion of Industrial Production. Historically manufacturing year-over-year growth has been negative when a recession is imminent. This index is nearing the warning area for a recession.