Industrial Production – Easy Trends (thru March 2014)
Let’s talk about industrial production, its importance and the current trends. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.
NOTE: You may be reading an outdated analysis. Please visit my latest industrial production trend analysis for more info.
Quick ‘n Easy
Industrial Production (IP) measures how much is being produced by factories, mines and utilities. The changes in IP track very closely with changes in the overall economy.
First, a nice summary of what Industrial Production (IP) is from Econoday:
The index of industrial production shows how much factories, mines and utilities are producing. The manufacturing sector accounts for less than 20 percent of the economy, but most of its cyclical variation. Consequently, this report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.
Easy Translation: The first sentence is probably enough for an understanding – what’s being produced at factories, mines and utilities. The second sentence is a key detail though. Because it relates to manufacturing, and manufacturing is only about 20 percent of our economy, at first glance one might consider this indicator not important. But the changes in the manufacturing sector track the changes in the economy extremely well. In other words, the cycles of the two are well matched, making IP incredibly important to track.
Here’s a ten-year chart of the Industrial Production Index from the Federal Reserve Bank of St. Louis (a level of “100″ represents the level in 2007):
Industrial Production Trends and Projections
Below, I will discuss whether industrial production is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. I generally start my analysis from 3 years ago. continue reading…