Industrial Production: The Chug Continues

This week’s calendar of news releases is full of the lesser reports that allow us to fill in the details of economic activity. Each is simply a small part of the whole, but each contributes to the overall picture.

Today’s example is one of the more significant: industrial production, which edged up 0.2% in August, down from a revised 0.6% in July, and the 14th straight month of increase.

As usual the devil is in the details:

The August slowdown from July was entirely attributable to two sources. Auto industry production levels dropped significantly from July; and utility output fell, reflecting the slight change in temperature in some parts of the country.

I have mentioned the auto industry’s atypical year elsewhere. By keeping their factories running during July instead of closing them for the normal two week break, the big auto makers threw a statistical wrench in the works. All the normal seasonal adjustment factors were thrown off course making it difficult to identify the real underlying trend. Now things are coming back into focus. July’s 17.2% rise in auto output has now been tempered by August’s 7.9% drop. For our purposes – getting an idea of the medium term trajectory – we can ignore the gyration and look more at the average change. From that perspective output is still up, but at a more modest rate than the early summer reports suggested.

As for utility output, the summer always brings a certain bumpiness to the data because of the heat. Electricity consumption spikes whenever a heat wave settles somewhere, and last July was unusually warm across the entire country, whereas August was more normal. Hence the drop from July to August.

Thus far manufacturing has been one of the strong points in the recovery, so any evidence of a slowing in growth is a cause for concern. Right now it is too early to tell whether August’s slide is the beginning of a more troubling turn of events, or whether it simply reflects the kinds of twists I just alluded to. Another of today’s reports, the Empire State Index measuring activity in New York State, hints at a more pessimistic interpretation. It fell back to a score of 4.1 in early September, from 7.1 in August. This is the lowest it’s been since last summer, thus hinting at a more general slowdown in factory activity. Any reading in the index above zero suggests growth, and last April the index read 31.9, so clearly things have slowed considerably since then. But they have not signaled shrinkage.

Meanwhile capacity utilization nationwide continues to edge up, it is now at 74.7%, up 4.7% in the last year. While this is certainly progress it is disappointing. A normal recovery is associated with a more rapid increase in utilization, so this indicator is one measure of the tentative nature of our progress to date.

What does this all mean?

More of the same. Weakness everywhere, but growth nonetheless. The chug continues.