I quickly want to show you why I track and present economic data the way I do. When the most recent industrial production data was released, Bloomberg ran a headline on its site that said “U.S. Industrial Production Unexpectedly Falls.” In the article, the reporter noted that motor vehicle and parts production was down more than 3.0 percent. While this is all true, the information in the Bloomberg article isn’t as relevant as it could be to the manufacturing industry. There are two primary reasons why. First, the headline focuses on all industrial production, but I specifically care about durable goods industrial production. More precisely, I care about the durable goods industries that most affect the metalworking industry. Second, the headline and article compares November 2011 production to October 2011 production. This ignores the fact that manufacturing is both highly cyclical and highly seasonal. So, focusing on the month-to-month change loses the forest for the trees. Getting caught in short-term fluctuations and trends hinders important tactical and strategic thinking and makes emotion too large a factor in the decision-making process.
It’s more important to concentrate on the change from the same month one year ago. Done this way, November consumer durable goods industrial production increased 9.2 percent compared to November 2010. This was the second fastest one-month rate of change since March 2011. And, the annual rate of change has grown for three straight months. Looking at the chart above, it becomes apparent why the drop in industrial production from last month isn’t all that important. There is obviously cyclicality in the data (notice on the red line all those sharp points down with flatter areas up higher). When we look at the annual rate of change (the black line on the chart), we see that industrial production is growing faster than it was three months ago. And, if we expanded the timeline back, we would see that consumer durable goods industrial production is still growing faster than at any time since 1999 (excluding the most recent expansion). I think looking at the data in this manner provides more insight for your planning and strategic thinking than the presentation from Bloomberg, which is how the majority of economists and almost all the media report the data.
And, as for motor vehicles and parts industrial production, its one-, three-, and 12-month rates of growth are all the fastest since at least March 2011. That’s a far different picture than the one given by Bloomberg.
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