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Tuesday, June 17, 2008

Industrial Production - tech propping up the numbers?

The Federal Reserve today reported Industrial Production for May. Production unexpectedly declined 0.2% from the prior month, which was worse than the forecast of a 0.1% increase. Manufacturing output was unchanged in May, the output of utilities shrank 1.8 percent, and the output at mines rose 0.1 percent. Capacity utilization slipped 0.2% to 79.4%.

The following set of graphs comes from the Federal Reserve's web site and show the relationship of high tech manufacturing to industrial production overall.

US Industrial ProductionTake a look at the middle chart, the one that shows percent change year over year. It's interesting to see that the recession in 2000 (gray highlight) and its accompanying brutal bear market in stocks did not see a dip in industrial production as severe as those seen during the 1970's and 1980's recessions.

Looking at the most recent data points in the same chart, it is also interesting to note that without the positive contribution of tech, the percent change in industrial production would now be slipping negative.

It has been documented that manufacturing is no longer as important to the general economy as it used to be. The middle chart seems to support this concept as it clearly displays the percent increases in industrial production have become narrower over time. The top chart also shows how industrial production has been somewhat flat, or at least growing very slowly, over the last decade or so when compared to previous decades of stronger growth.

It's always worthwhile to poke around in the data the Fed makes available to see what's behind the headline announcements that show up on most news sites.

Sources: Federal Reserve Statistical Release - Industrial Production and Capacity Utilization

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