Industrial Production Was Up 4%: No Sign Of A Recession?

Industrial Production & Manufacturing - 10 Year Highs

Month over month industrial production growth was 0.1% in October. It missed estimates for 0.2% growth. September’s growth rate was revised from 0.3% to 0.2%. It’s not a great sign to see month over month growth miss estimates when the prior month was revised lower.

The good news, which the chart below shows, is industrial production growth was 4.1% year over year. Overall industrial production is at a 10 year high.

The bulls claim this proves the economy isn’t in recession mode.

However, it’s important to point out many bears such as myself believe the odds of a recession in the intermediate term have increased. That doesn’t mean many facets of the economy can’t grow strongly now.

Manufacturing growth was 0.3% month over month which met estimates. And it was faster than the 0.2% growth rate in September.

Manufacturing was up 2.7% year over year and also hit a 10 year high. The big question about manufacturing is how it will deal with weakening global growth and lower oil prices.

We saw the Philly Fed index signal growth will be weak in November. Empire state index show growth was strong. Both had strong capex indexes.

Personally, I think these metrics will fall after the tariffs go into effect in 2019. There are some areas where trade is boosted right before tariffs are implemented.

Businesses try to front-run the cost increases.

Finally, as the chart above shows, the capacity to utilization rate fell from 78.5% to 78.4% which beat estimates for 78.2%. The original September reading was 78.1%.

Cycle peak was 79.6%. This implies there’s plenty of headroom to increase industrial production in the near term. That would be a worry next year if industrial production growth continues. But I don’t think it will.

Mining capacity fell 0.8% to 92.7%. Utilities capacity fell 0.5% to 77.3%. Manufacturing capacity was up 0.1% to 76.2%.

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