Industrial Production and Other Reflections on Data Released This Morning

November 17, 2009

U.S. industrial output edged only 0.1% higher in October, a smaller gain than anticipated but still enough to place October’s level 0.9% above the third-quarter mean.  That’s not a bad start to the quarter.  Industrial production was 7.1% lower than a year earlier.  By comparison, the latest reported 12-month declines in Japan of 18.4%, Euroland of 12.9%, and Britain of 10.3% were each in double digits.  These findings dove-tail with the smaller peak-to-trough decline of real GDP in the United States than many other economies.  Total industrial capacity utilization in October of 70.7% remained below 75.4% a year earlier and 80.6% at the start of the financial crisis in August 2007.  Capacity usage averaged 80.5% in 2005-7 and bottomed at 73.5% in the previous business recession.

U.S. international capital flows in September were more dollar-supportive than assumed.  Insofar as the dollar posted losses between end-August and end-September of 2.1% against the euro, 3.5% against the Swiss franc, 2.2% against the Swiss franc, and 5.3%, 4.7%, and 2.3% against the New Zealand, Australian, and Canadian dollars, the strength of today’s report underscores yet again the uselessness of this data series as an analytical gauge of currency market pressure. International flow of funds data of all sorts have offered considerable hope to currency market prognosticators but invariably, as in this instance, fail to live up to their promise.  The Treasury reports three separately defined capital inflows.  The narrowest of these widened by $6.5 billion to $40.7 billion, which was similar to the 2008 average monthly inflow of $41.3 billion.  A somewhat broader aggregate net flow, which like the first encompasses only long-term assets, produced a $31.7 billion in September, up from $18.5 billion in August and a monthly average of $24.9 billion in 2008.  The most inclusive definition, which includes short-term securities flows, leaped to $133.5 billion from $25.3 billion in August and an average monthly inflow last year of $55.3 billion.

U.S. inflation remains subdued.  The twelve-month rate of U.S. producer price inflation climbed from negative 6.8% in July to minus 1.9% in October.  However, the monthly advance of 0.3% was less than anticipated, and the core index dropped by a surprising 0.6%.  In on-year comparisons, wholesale prices have dropped much less in the United States than the latest negative readings of 7.7% in Euroland, 6.7% in Japan, or 5.2% in China.  The reason for this disparity is that the U.S. reports PPI figures comparatively soon, so U.S. October numbers were announced today, whereas the other country comparisons involve the month of September.  British producer output prices, where the latest release was for October, rose 1.7% in the past twelve months, and U.K. producer input prices edged higher on a year-over-year basis for the first time since February.  The very steep decline of oil prices late in 2008 has convinced ECB officials for some time that inflation will soon move above zero again.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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