Analyst: Industrial Production Headed For 'Slow Growth'

Industrial activity is on a seesaw pattern with an average that equals slow growth. Measuring quarter-to-quarter reveals that manufacturing production grew at only a 1.4 percent annual rate in the second quarter of 2012.

“The Federal Reserve Board reports that industrial production increased 0.4 percent in June,” noted Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “Manufacturing production was up 0.7 percent and mining production rose 0.7 percent, but utility production dropped 1.9 percent. Manufacturing production in June was relatively strong across the 20 major industries within the sector—15 industries grew and only 5 industries declined.

“The June industrial production report for manufacturing in isolation is very encouraging; however, when the scope is widened a few months, a strong June was offset by a weak May and a strong April was offset by a weak March,” he said. “Industrial activity is on a seesaw pattern with an average that equals slow growth. Measuring quarter-to-quarter reveals that manufacturing production grew at only a 1.4 percent annual rate in the second quarter of 2012. All the growth in manufacturing production has been in durable goods as there is pent-up demand for motor vehicles and machinery and equipment from postponed replacement cycles. Nondurable goods manufacturing declined at a 3.4 percent annual rate in the second quarter.

“It is important to think of manufacturing in the context of a sluggish U.S. economy and struggling world economy,” Meckstroth cautioned. “Consumers are income-constrained and lack the collateral to use credit to spend more than their incomes. When they spend more for new auto payments they have to spend less somewhere else. Export growth is difficult to sustain in light of the recession in Europe and slowing growth in China. The sweet spot in the outlook is business spending for factories and equipment. Less uncertainty about the fiscal cliff, regulation, and growth would certainly help business confidence in making these investments.”

More in Home