February Industrial Production up 10% but Trend is Flat

Consumer durable goods industrial production in February was up 10.0% compared to February 2009, but since August 2009 the index has been virtually flat. While this is the second straight double digit month-over-month increase in consumer durable goods industrial production, this essentially is due to easy comparisons.

In the first half of 2009, consumer durable goods industrial production fell to, and stayed at, a level last seen around 1995. Since August, consumer durable goods industrial production has been running about 10% higher than it did in the first part of 2009, but it is still at a level consistent with production in 1997. This increase was due to a number of stimulus measures—cash for clunkers, the first-time home buyers' tax credit and the extension of unemployment benefits—that have helped propel consumer spending. However, these measures have a temporary effect and simply pull demand forward from the future rather than create demand (only increased savings can do that).

As we move forward, the question becomes: Can the government create new stimulus schemes to pull more demand forward? If it can, then we could see more growth in the industrial production index. If it can’t, then industrial production most likely will remain at this level or even fall once again because personal income and debt flow are still contracting significantly.

To see more on leading indicators for consumer durable goods industrial production and production for other specific industries go here.