Industrial Production "Inflection" to Lead Equities Higher?

The WSJ reports:

U.S. industrial production grew in September but the gain was small, underscoring the economy's lack of vigor.

Production rose by 0.2%, with a modest gain in manufacturing and a sharp drop in utilities caused by moderating weather. The Federal Reserve report on Monday showed overall production was flat in August, revised down from a previously estimated 0.2% increase.

Manufacturers in the U.S. have been feeling the weight of a lackluster economy, hamstrung by high unemployment. While it is still growing, the factory sector has, with the overall economy, slowed.

While the rebound in industrial production may be lacking the ideal punch, the index (which tends to have a positive relationship with the S&P 500) did turn positive this month on a three year rolling basis.

More interesting (to me) industrial production appears to have led the S&P 500 higher when rolling three year industrial production turned positive (i.e. the "inflection" point). The below chart strips out the S&P 500 rolling returns and replaces it with the three year forward (annualized) performance of the S&P 500 following the inflection point.

Source: Federal Reserve

Europe's Industrial Rebound: The Power of Mean Revision

RTT News details:

Eurozone industrial new order growth quickened in November, led by Portugal, Finland and Germany, official figures showed Monday. Industrial orders rose 2.1% month-on-month in November, after rising 1.4% in October, the European Union Statistical office Eurostat said. On an annual basis, industrial order growth accelerated to 19.9% from 14.8% recorded in the preceding month. The rise exceeded the 17.5% increase economists had forecast.

The below charts show that much of this is purely a rebound off lows, with a relatively strong relationship between those reporting strong results in 2010 off of lower figures in 2009.





Source: Eurostat

European Manufacturing Rebound Hits Speed Bump

WSJ details:

New industrial orders in the euro zone posted their sharpest monthly drop for 19 months in July, led by a slump in orders for capital goods, official data showed Wednesday.

Factory orders dropped 2.4% from June—the sharpest decline since December 2008—but were 11.2% higher than in July a year earlier, the European Union's Eurostat statistics agency said. June's figures were also revised down slightly to show orders rose 2.4% month-to-month and 22.7% year-to-year.

The July figures were weaker than expected. Economists had predicted orders would be 1.6% lower from the previous month and 16.3% higher than a year earlier, according to a Dow Jones Newswires survey last week.

The figures appear to support the view that the euro zone's economic recovery is likely to lose some steam in the second half of the year, in part because of government spending cuts designed to reduce the size of countries' budget deficits.

Ignore Denmark below, which had grown 23.9% in June and is volatile due to aerospace purchases.

Over the longer term, we see that although production has rebounded significantly off lows, intermediate and capital goods production is still way below previous peaks.



A slow down combined with the recent surge in the Euro that will impact export price levels means that Europe will be facing some severe headwinds in coming months.

Source: Eurostat

Industrial Production over the LONG Term

Reuters details:

U.S. industrial output rose at a slower pace in August and a measure of New York
state business conditions slipped to the lowest level in more than a year, according to data on Wednesday that suggested the economy was cooling but not stalling.

Industrial production rose 0.2 percent in August, matching economists' forecasts for a sharp slowdown from July when unusually strong auto manufacturing lifted output, Federal Reserve data showed. July's gain was revised down to 0.6 percent from 1 percent.

And the long-term...

Source: Federal Reserve

Industrial Production Blips Higher

BusinessWeek details:

Industrial production in the U.S. unexpectedly rose in June as higher temperatures across the nation led to increased utility use.

Factories, which led the economy out of the worst recession since the 1930s, are facing less pressure to boost production to rebuild inventories as consumer spending cools. Manufacturers will instead be able to count on gains in business investment that have spurred sales and earnings at companies such as Intel Corp.

“I don’t think the industrial sector just fell off a cliff,” Paul Ashworth, senior U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “We’ve seen some pretty big gains over the last few months so I would characterize it more as giving back some of those gains. There’s still a lot to support for the industrial sector.”

Looking at the longer term trend, the relative outperformer has actually been due to the surprise strength of the consumer (i.e. consumer goods). The area I am focusing on is business equipment, which has in fact rebounded sharply from what were massive lows. An increase in consumption going forward will likely need to come from an improved job market and investing in new equipment should be a sign that businesses view the economy in an improved light.

Source: Federal Reserve

The Global Recovery and Backward Looking Data

The AP details:

Stocks extended their climb to a third day Monday following signs that Europe's economy might not be badly hurt by its debt crisis.

The Dow Jones industrial average rose about 80 points in morning trading after rising 312 points in the past two days.

Major European markets rose following a report that industrial production in the 16 countries that use the euro grew more than expected in April. The euro also rose, climbing back above $1.22 for the first time since June 4.

The production report was encouraging because investors have been concerned that government spending cuts aimed at slashing debt would hurt Europe and slow a global recovery.

Below details what the media (and markets) seem to be excited about. My issue? This is backward looking data. Austerity measures, uprisings, and market sell-offs were broadly announced in May and June. These figures are from April.



Source: Eurostat

Japanese Production Takes a Breather

Bloomberg details:

Japan’s industrial production retreated in February, snapping an 11-month winning streak that helped to secure a recovery from the country’s worst postwar recession.

Factory output declined 0.9 percent from January, when it rose 2.7 percent, the most in eight months, the Trade Ministry said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.5 percent drop.

The slide is unlikely to last as Asian demand for the country’s electronics and machinery continues to fuel exports, Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, said before the report was published. Factory output and exports have yet to return to their peak set two years ago, and the recovery remains plagued by deflation.

While today's 0.9% slide wasn't a surprise to the upside like yesterday's consumption release, it also wasn't that unexpected considering the huge jump we saw in January (industrial production is still up considerably from December's figure).



Putting it all together...

The good news is production is up considerably from lows. The bad news is how far things fell (i.e. can businesses operate profitably at these new levels). Relying on the United States for recovery is a concern, but the benefit of being situated near a red-hot China allows room for optimism.

Source: METI.Go

Industrial Production Grows Despite Weather

WSJ reports:

U.S. industries reduced manufacturing output in February because of severe weather, while overall production totals inched ahead slightly. Industrial production last month increased by 0.1%, the Federal Reserve said Monday. That falls in line with the expectations of economists surveyed by Dow Jones Newswires. January output remained unchanged at 0.9%.

The biggest gain in the report showed output in the mining industry rose 2.0% after climbing 1.1% in January. Mining capacity use rose to 88.2% from 86.4%. Still, manufacturing production in February decreased 0.2% from the previous month's 0.9% increase, the report said. Car and parts output showed a steep dip of 4.4%. excluding autos, production in all other industry remained stagnant.

Source: Federal Reserve

The Recession is Over!!!

Barry (of The Big Picture) noticed that the recession is officially over!!! (well, at least according to the charts over at the Federal Reserve):

Now it appears that with the latest G17 release on Industrial Production, the Federal Reserve is making the same assumption. They make note of this referring to several charts stating:

"The shaded areas are periods of business recession as defined by the National Bureau of Economic Research (NBER). The last shaded area begins with the peak as defined by the NBER and ends at the trough of a 3 month moving average of manufacturing IP.”

They are referring to the technical definition of contractions (recessions) as starting “at the peak of a business cycle and end at the trough (as defined by the NBER).

The Fed's charts are no longer showing the shaded regions that indicate recession (re-created below sans shading).

Too early?

Source: Federal Reserve

Industrial Production Declines in Eurozone for First Time Since March

Slightly dated (October figures) as there is a delay in the release, but this would impact Q4 GDP for the Eurozone. Reuters details:

Euro zone industrial new orders were weaker than expected in October and producer prices grew less than anticipated in November, data showed, underlining the fragility of economic recovery and weak inflationary pressures.

Industrial new orders in the 16 countries using the euro fell 2.2 percent in October against September, the European Union statistics office Eurostat said on Wednesday.
Orders were dragged lower mainly by a slump in volatile demand for ships, planes and trains, without which the monthly decline was only 0.4 percent.

October new orders, which will translate into industrial production over the following months, were 14.5 percent lower than a year earlier, although that was only half the annual decline in May.

Source: Eurostat

Capacity Utilization and Production Rebounding

Reuters reports:

U.S. industrial output rose firmly in November as the manufacturing sector extended a recovery that economists hope will help turn around the ailing labor market.

Production climbed 0.8 percent, the Federal Reserve said on Tuesday, well above forecasts for a 0.5 percent gain. The strides were powered in part by the automotive sector, and came despite a sharp drop in utility output. Capacity utilization, the amount of the nation's industrial capacity being put to use, rose to 71.3 percent in November from a revised 70.6 in October, its highest level since last December but still well below the long-range average.

Update:

An Anonymous reader didn't like the post.

Come on Jake. This reporting is hugely inaccurate. If we really want BS spin reporting, we'll just watch CNBC! A prosuction increase of .8 percent is not significantly above a forecast of .5 percent. This is noise. Capacity Utilization is much closer to the bottom than 2007 levels. Your graph does not illustrate that at all.

While I did enjoy his candor... my response:

I will defend myself and say I used the word "spike" not "rebound".

After the freefall we saw from late 2008 through early 2009, I'll agree that we need a "spike" to get the economy back to trend, BUT a rebound is better than a continued decline.

And the data seems to show just that.



Does this mean the "rebound" is sustainable? Not necessarily, but it has been a rebound none-the-less.

Source: Federal Reserve

Industrial Production Down in Eurozone

RTT News details:

Eurozone industrial production declined in October hurt by plunging demand for durable and non-durable consumer goods, pointing to meager support to GDP growth in the fourth quarter.

Industrial output in the 16 nation currency bloc fell by a seasonally adjusted 0.6% in October compared to the previous month, reversing the revised 0.2% rise in September, a report from Eurostat revealed Monday. Production thus declined after rising for five consecutive months.

However, the actual drop for October was slightly smaller than the 0.7% decline expected by economists. The statistical office revised the monthly growth for September from 0.3%.

Glass Half Empty

Strong improvement witnessed over recent months is losing momentum. BNP Paribas economist Clemente De Lucia noted that the impact of car incentive schemes is starting to ease and will not be felt anymore next year.

Glass Half Full

However, according to Martin van Vliet, an economist at ING, it is premature to conclude that the industrial recovery is seriously losing momentum as less volatile three-month rate of change remained firmly in positive territory. Economist forecast Eurozone GDP to expand at a fairly healthy clip in the fourth quarter.

Source: Eurostat

Japanese Industrial Production Up, but Disappoints

Bloomberg reports:

Japan’s industrial production rose less than economists estimated in October, undermining the nation’s recovery from its deepest postwar recession.

Factory output increased 0.5 percent last month from September, the slowest pace in eight months, the Trade Ministry said today in Tokyo. The median estimate of 27 economists surveyed by Bloomberg News was for a 2.5 percent gain.

The decline, led by automakers and electronics parts companies, adds to concern that the economy may slow once global stimulus spending wanes. Bank of Japan Governor Masaaki Shirakawa and Prime Minister Yukio Hatoyama will meet “soon” to discuss how to address a surging yen and slumping stock market, Chief Cabinet Secretary Hirofumi Hirano said today.

“These are weak numbers,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “We’ve been seeing a V-shaped recovery so far, but the pace is starting to moderate.”

Below we see the speed and size of the recovery. While the six month change is still up ~15%, the size of this change has begun to reverse course. While not only indicating that we should not be looking for a "V" shaped recovery, it also puts how large the decline in output really was last Fall.



Source: METI

Eurozone Industrial Production: Strong, but Split

The Good

Interactive Investor with the details:

"Euro zone industrial orders encouragingly rose by a larger-than-expected 2.0 percent month-on-month in August, thereby achieving a fourth successive increase. The underlying improvement was highlighted by the fact that euro zone industrial orders jumped by 7.1 percent in the three months to August compared to the three months to May.

The Not So Good

"However, it should be noted that August's rise in euro zone industrial orders was highly dependent on a 3.8 percent month-on-month increase in demand for intermediate goods while there were falls in orders for consumer goods and capital goods. Furthermore, euro zone industrial orders were still down by 23.1 percent year-on-year in August.

The Worrisome

The bifurcation between the "haves" and "have nots". While overall, the Euro Area was up 2% in August, countries were more than split to the downside.

Source: EuroStat

Japanese Industrial Production

Bloomberg details:

Japanese manufacturers increased production for a sixth month in August, capping the longest stretch of gains in 12 years, as emergency spending by governments worldwide rekindled global trade.

Factory output rose 1.8 percent last month after climbing 2.1 percent in July, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg forecast a 1.8 percent gain.

Output has rebounded since a record collapse in the first quarter of the year left half the nation’s factory capacity sitting idle. The gains in production since March have yet to generate employment, trigger capital investment or return companies like Toyota Motor Corp. to profit.

“We’re not going to fall back into recession, but these production increases don’t bring us back to where we started,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “You’ve still got a lot of excess capacity.”

The good... industrial production is up 21% from its lows. The bad... it is still 24% below its peak.

Source: Meti.GO

The Auto Rebound... Now What?

More on yesterday's industrial production jump. The power of government intervention (i.e. Cash for Clunkers). St. Joe News with the details:

Industrial production rose in a fairly broad-based pickup in August, according to the Fed data. The central bank also said production jumped 1 percent in July, twice as much as originally reported. Car manufacturing drove that gain.

Factory output — the single-biggest slice of overall industrial activity — also rose for the second straight month. It posted a 0.6 percent gain in August, following a 1.4 percent rise in July.

Auto production led the way, rising 5.5 percent last month due mainly to the government’s Cash for Clunkers program. That followed a whopping 20.1 percent gain in July.

It will be interesting to see the figures for September.

Source: Federal Reserve

Japanese vs. European Production

Japanese and European industrial production figures for July showed the diverging levels of collapse and (in the case of Japan at least) recovery.

Japan

RTT News reports the stabilization seen after the monumental collapse in Japan:

A report from Japan's Ministry of Economy, Trade and Industry showed that industrial production grew 2.1% month-on-month in July, revised up from the initial estimate of 1.9%. Annually, production was down 22.7%.

Monthly growth in shipments was revised to 2.4% for July from 2.3%, while inventory dropped 0.3% compared to a 0.2% fall estimated initially. Compared to July 2008, shipments and inventory plunged 22% and 10.6%, respectively.

Europe

While the production collapse wasn't nearly as large in Europe as in Japan, we aren't yet seeing a rebound off of lows. Reuters reports:

Euro zone industrial output fell in July and employment dropped again in the second quarter, pointing to continued weakness in the economy despite signs that euro zone recession may be ending.

Industrial output in the 16 countries using the euro fell 0.3 percent month-on-month in July for a 15.9 percent year-on-year fall, the European Union's statistics office Eurostat said on Monday.

Economists polled by Reuters had expected a 0.2 percent monthly decline and a 16.6 percent annual drop.

The year-on-year numbers, however, showed clearly the contractions in output are becoming smaller. In June, production was 16.7 percent lower than a year earlier and in May it was 17.6 percent, better than the 21.3 percent in April.

Source: Eurostat / METI.GO

Eurozone Industrial Production Improves

BBC reported:

Eurozone industrial output rose in May compared with April, the first month-on-month increase since August last year, official figures have shown.

Factory production across the 16 nations that share the single currency rose 0.5% last month from April, but was still down 17% from May last year.

The data comes two weeks after official figures showed eurozone retail sales fell in May, while unemployment rose.

Despite this picture, Brussels says the recession is now easing.

The European Commission has predicted that the official figures will show the eurozone economy contracted 0.6% between April and June, a slowdown on the 2.5% rate of decline seen between January and March.

Eurostat, the European Union's statistics office, also revised up its industrial production data for April, saying it contracted by a rate of 1.4%, not the previously reported 1.9% fall.

'Put in perspective'

"May's first rise in industrial production is obviously very welcome news, and reinforces belief that the eurozone economy contracted at a substantially reduced rate," said Howard Archer, chief economist at IHS Global Insight.

"Nevertheless, it needs to be put into perspective - production was still down by 17% year-on-year."

Source: Eurostat

Japanese Industrial Production Jumps, But Still Down 30% YoY

Bloomberg reports:

Japan’s industrial output rose for a third month in May as companies rebuilt inventories and the economy started to climb out of its deepest postwar recession.

Production climbed 5.9 percent from a month earlier, the Trade Ministry said today in Tokyo, the same pace as April, which was the biggest gain since 1953. Economists surveyed by Bloomberg predicted a 6.9 percent increase, and factories were still producing 29.5 percent less than last year.

One of the largest areas of industrial production in Japan is production of passenger cars, which makes up ~8.5% of the index. This areas showed a HUGE rebound over the last month, up 34% month over month (seasonally adjusted), though still down 40% from the same period last year.



Source: METI.GO.JP

Euro-Zone New Orders Plunge

Guardian reports:

Euro zone industrial orders plunged by more than a third year-on-year in April, a record decline led by capital and intermediate goods that pointed to continued contraction of the economy, data showed on Thursday.

Orders fell 1.0 percent month-on-month for a 35.5 percent annual drop, European Union statistics office Eurostat said. Economists polled by Reuters had expected a flat monthly reading and a 32.3 percent year-on-year fall.

"If you play the 'green shoot' game, it is better to avoid the hard data," said Martin van Vliet, economist at ING.

Source: Eurostat