Contrary to the headline of the USA Today article, industrial production did not really fall "less than expected." There are two rules that must always be remembered when looking at the Fed's monthly data on industrial production. First, skip the overall number and go directly to manufacturing production. Changes in the overall number are often driven largely by utilities. Output at utilities primarily provides information about the weather, not the state of the economy. The second rule is to look at the revisions. There are often large revisions to prior months' data. A large fall from an upward revision can leave us in a much better place than a small fall from a downward revision. If the new information in the report is that things were much worse last month than we had thought, we have limited grounds to celebrate when we say that they have not worsened too much further in the current month. The data show that November's manufacturing output is down 1.4 percent from October's level, which was in turn revised down by 0.5 percent from the previously reported level. Over the last three months, manufacturing output has fallen at a 17.8 percent annual rate. That is not good news.
--Dean Baker
