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Industrial Production Both Better and Worse Than Reported
Most news accounts that reported on the Fed's release of data on industrial production highlighted the overall increase of 0.5 percent. However, a big factor holding down the gain in July was a 2.4 percent reported decline in the output of utilities. Month to month changes in utility output are determined primarily by the weather, not the state of the economy. If we instead just focus on manufacturing, we see that there was a strong 1.0 percent gain in output in July.
That's the good news. The bad news is that almost the entire gain was attributable to a 20.1 percent rise in output in the auto sector. The increase in output excluding autos was just 0.1 percent. In other words, car production is being driven by increased sales associated with the cash for clunker program. Otherwise, manufacturing is still pretty much dead in the water.
--Dean Baker
COMMENTS (4)
The open question is, are the incentive portions of the stimulus packages simply frontloading demand?
Calculated Risk has a post up on this, “First-time Home Buyer Frenzy.”
http://www.calculatedriskblog.com/2009/08/first-time-home-buyer-frenzy.html
A BusinessWeek article from May on Germany’s cash-for-clunkers program mentioned, “Total unit sales in Germany were up 18% in the four months to April vs. a year earlier…”
http://www.businessweek.com/globalbiz/content/may2009/gb2009056_301566.htm
Even if these programs are extended, it won’t matter. They’ve already moved up future sales because of the announced deadlines.
Posted by: Bob_in_MA | August 15, 2009 11:09 AM
This data shows that Keynesian theory works in the real world. The stimulus temporarily replaces demand - it doesn't front-load it, Bob.
Too bad the Obama Administration did not see fit to pass a stimulus package front-loaded with spending this summer. People should be driving by construction zones in every part of every state. & GDP would have risen slightly, not fallen slightly, in the last quarter.
Posted by: Anonymous | August 15, 2009 11:43 AM
Dean,
Those connected to manufacturing could supply strong,broad based support for your conclusion that manufacturing remains weak.
Posted by: Ron Alley | August 15, 2009 11:18 PM
Tom Geoghegan in The Secret Lives of Citizens claims that manufactureres now rarely hire english speaking workers and that two thirds of jobs are low skill while in Germany only 28 percent of manufacturing jobs are low skill. Have we moved third world manufacturing and workers to the U.S. ?
Posted by: craig | August 16, 2009 6:04 PM