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Posted by: 25. June 2012

Industrial Production Growing Faster and Faster

 
The consumer durable goods industrial production index was 95.0 in May 2012. This was the fourth month in a row that the index had been at or above 95.0. The last time that happened was August-December of 2007. This was the fourth time in the previous five months that the one-month rate of change had been more than 10 percent. Also, the annual rate of change grew faster each of the previous seven months. Since consumer durable goods industrial production is the best leading indicator for machine tool sales, this is a very positive sign for future machine tool consumption.
 
A good leading indicator for consumer durable goods industrial production is consumer durable goods spending. Spending remained at a very high level. The one-month rate of change showed consistent growth. In April, the one-month rate of change was at its highest level since April 2011. However, the annual rate of growth slowed for eight consecutive months. While the annual growth is slower, it is still at quite a fast rate. Because the growth is still relatively fast and reshoring is a real phenomenon (more than many realize, I think), industrial production is growing faster even when the leading indicator says it should be slowing down—there is a very tight historical relationship between spending and production. The divergence from the historical relationship can continue for some time due to the specifics of this cycle. But, if consumer durable goods spending slows enough then it will start to be a drag on production.
 

To see more information on industrial production and its leading indicators go here

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