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Down Goes Industrial Production

Written by Gary North on December 19, 2011

The Federal Reserve has published the figures. They were headed lower in November. They had been rising in October.

Industrial production decreased 0.2 percent in November after having advanced 0.7 percent in October. Factory output moved down 0.4 percent in November; excluding a drop of 3.4 percent in the output of motor vehicles and parts, manufacturing production declined 0.2 percent.

Businesses cut production when managers sense a decline in demand. They do not want to get stuck with rising inventories. It costs money to store unsold goods.

Across the boards, the cuts came.

The output of consumer goods declined 0.5 percent in November. The production of durable consumer goods fell 1.4 percent, as the indexes for automotive products and home electronics dropped 2.0 percent or more. The output of appliances, furniture, and carpeting decreased 0.2 percent, while the output of miscellaneous goods increased 0.6 percent. The production of nondurable consumer goods moved down 0.2 percent; an increase of 1.0 percent for consumer energy products was outweighed by a decrease of 0.7 percent for other nondurable consumer goods. The decline in non-energy nondurables reflected reduced output for each of its major categories.

This is a reversal.

In November, the index for business equipment edged down 0.1 percent; during the previous four months, the index had advanced, on average, more than 1.0 percent per month. The output of transit equipment was unchanged in November, as gains in the output of civilian aircraft and railroad equipment offset declines in the production of motor vehicles for businesses. Overall, the index for transit equipment remained more than 25 percent above its year-earlier level. The index for information processing equipment inched up 0.1 percent in November, and the production of industrial and other equipment decreased 0.3 percent.

There was better news regarding construction. “The output of construction supplies rose 0.4 percent in November, its third consecutive monthly increase.” But business supplies, a good indicator of business activity, fell 1.1 percent.

Manufacturing output decreased 0.4 percent in November, and the factory operating rate dipped to 75.3 percent, a rate 10.9 percentage points above its trough in June 2009 but still 3.7 percentage points below its long-run average.

And so it went.

The index for nondurable manufacturing declined 0.4 percent in November. Among the major components of nondurables, losses of more than 0.5 percent were reported for textile and product mills, apparel and leather, printing, and chemicals. Only the indexes for paper and for petroleum and coal products moved up.

The problem is that all this indicates a reversal.

The index for other manufacturing (non-NAICS), which consists of publishing and logging, dropped 2.2 percent in November; the index had registered gains in each of the previous four months.

The recovery is showing signs of faltering. It has not been much of a recovery.

Continue Reading on www.federalreserve.gov

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