Industrial production continues to put on a spectacular show in a negative sense. The index of industrial production is down yet again, this time by 0.4 percent vs. a Bloomberg Econoday consensus estimate of -0.1 percent. A steep drop in autos led the way.


A steep drop in vehicle production pulled industrial production lower in May, down 0.4 percent. Vehicle production had been leading this report but fell 4.2 percent in the month excluding which the headline loss would have been 2 tenths less severe at 0.2 percent. Utility output is always volatile and fell 1.0 percent, which isn’t helpful, but mining for once is, up 0.2 percent for the first gain since August last year.

The manufacturing component, hit especially by vehicles, is the big disappointment, down 0.4 percent in the month. Declines sweep sub-components including consumer goods, business equipment and construction supplies. Year-on-year, manufacturing volumes are unchanged in what is reminder of how soft the factory is.

There are also downward revisions to April including manufacturing where the gain is 1 tenth more modest at 0.2 percent. The weakness of the factory sector, and its exposure to foreign markets and declining business investment, is contrasting very sharply right now with strength in the consumer sector.

Note that the traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

Recent History

Unusually big swings in utility output have been making for uneven readings in industrial production which is expected to slip 0.1 percent in May after jumping 0.7 percent in April. Mining has been a consistent negative while manufacturing has been a negative more times than not. Only a 0.1 percent increase in manufacturing production is expected for the May report, a result that would once again weigh on the factory outlook. The overall capacity utilization rate is expected to inch 2 tenths lower to 75.2 percent, a reading not consistent with price traction for goods.

Industrial Production Since May 2013

Industrial Production 2016-06-15

Industrial Production Trends

Just Manufacturing?

Bloomberg comments “The industrial sector accounts for less than 20 percent of GDP. Yet, it creates much of the cyclical variability in the economy.”

The implied thinking is “Don’t worry, it’s just manufacturing.”

Some of us dispute that often repeated claim. The reason is GDP only counts final sales to the consumer. It ignores all the business-to-business sales that go into final sales.

I have commented on that at least twice.

I am amused by that second link. This is what David Rosenberg, chief economist at money-management firm Gluskin Sheff & Associates had to say “I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero.”

He made that statement based on the allegedly small percentage that manufacturing plays on the economy.

Gross Output Model

Mark Skousen’s article, Linking Austrian and Keynesian Economics: A Variation on a Theme explains why a Gross Output model that takes into consideration business-to-business transactions works better than the widely used GDP model that doesn’t.

The consumer spending model  ignores valued added in business-to-business transactions in every stage of production. The GDP and GO models differ widely in percentages assigned to the consumer and manufacturing in the economy.

For more from Skousen, please see his excellent report Third Quarter Gross Output and B2B Index Reports Sharp Slowdown in US Economy.

On January 21 Skousen reported Latest GO Data Says Recession May be Around the Corner.

Service Economy

By the way, the services economy is not acting all that hot either: Non-Manufacturing ISM Much Weaker Than Expected

ISM 2016-06-02A

Mike “Mish” Shedlock