Industrial Production Both Better and Worse Than Reported

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Most news accounts that reported on the Fed's release of data on industrial production highlighted the overall increase of 0.5 percent. However, a big factor holding down the gain in July was a 2.4 percent reported decline in the output of utilities. Month to month changes in utility output are determined primarily by the weather, not the state of the economy. If we instead just focus on manufacturing, we see that there was a strong 1.0 percent gain in output in July. That's the good news. The bad news is that almost the entire gain was attributable to a 20.1 percent rise in output in the auto sector. The increase in output excluding autos was just 0.1 percent. In other words, car production is being driven by increased sales associated with the cash for clunker program. Otherwise, manufacturing is still pretty much dead in the water.

--Dean Baker

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