Implications: No sign of a recession in today's numbers. Overall industrial production rose 0.4% in June. Manufacturing, which excludes mining and utilities, rose a very strong 0.7%. Industrial production is up 4.6% from a year ago, growing more than twice as fast as real GDP – so much for the idea that manufacturing is lagging. The data we watch most closely is manufacturing production, excluding the auto sector. This rose 0.5% in June, and has risen in 10 of the last 12 months. That's a very good track record, given that manufacturing ex-autos usually falls three or four times a year even during normal economic expansions. In other words, the economy looks to be stirring out of the soft patch, not stagnating further. The report stands in stark contrast to the national ISM manufacturing survey that said manufacturing contracted in June. We attribute that gap to negative sentiment – Europe, energy and politics. Given low inventories, particularly in the auto sector, we expect production to keep growing. Capacity utilization rose to 78.9 in June and it is still up substantially from a year ago. As a result, companies have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. In other news, the NAHB index, a measure of homebuilder confidence, increased to 35 in July, the highest level in over five years and the largest monthly gain in almost a decade. The plow horse economy continues to move forward.
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Posted on Tuesday, July 17, 2012 @ 12:12 PM
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