From SCDigest's On-Target E-Magazine
- Dec. 19, 2013 -
Supply Chain News: Headlines Say US Industrial Production Finally Exceeds Pre-Recession High - but Manufacturing Still Not There
US Manufacturing Still 2.8% Below 2007 Peak, while Capacity Utilization has Flatlined Below Long Run Average
SCDigest Editorial Staff
Headlines in many media week noted that US industrial production at long last exceeded its pre-recession peak in November.
The Wall Street Journal, for example, wrote that "US industrial output in November surpassed its prerecession peak for the first time, the latest sign of momentum for the economic recovery."
SCDigest Says: |
 |
That two percentage point difference between current and long run average actually represents billions of dollars of output, and would help push wages and prices up. |
|
What Do You Say?
|
|
|
|
That is true, but overall industrial production gives a slightly different view of the health of what the Federal Reserve considers the industrial sector, which in addition to manufacturing also includes output of mines and utilities.
Output from utilities can be especially volatile, as it is extremely affected by the weather. Hot periods in summer and cold periods in winter cause consumers to crank up their air conditioning or furnaces, and businesses to spend more to maintain normal temperatures in offices and factories. The gains in output from utilities in those scenarios do not really reflect real underlying economic growth.
With that in mind, total industrial output reached an index level of 101.3 in November, 1.3% above the index level of 100, set with 2007 as the base year. The index has fallen ever since 2007, dropping sharply in 2009 during the worst of the recession and starting a long slow climb back ever since. Sources in fact do note increased activity at utilities was in fact a key element of the rise.
The Federal Reserve also revised September and October numbers to 100.1 and 100.2 respectively.
But manufacturing alone still has a ways to go to get back to 2007 levels. The November manufacturing reading was 97.3, up from 96.2 in October. That means US manufacturing levels are still 2.8% below the 2007 peak, some seven years later, as shown in the graph below.
US Manufacturing Output 2004 to Present
Source: SCDigest Supply Chain One Source
The bottom during the recession came in June of 2009, when the index reached a low of 80.3.
Year over year, US manufacturing production is up a modest 2.9%.
(Manufacturing Article Continued Below)
|
