Double-Dip Watch: Uptick in Industrial Production

In this Summer of Disillusionment, where the plethora of bad news is driving a bond bubble, we had some rare good news: an increase in industrial production of 1% that beat expectations of 0.6%. Production is up almost 8% above year-ago levels, and if this pace continues, we should be back to a full recovery by next summer. This is the first positive surprise after a series of disappointing reports on retail sales, housing and building permits. Is this a harbinger of a change of trend back towards an economic recovery?

The report stands out against other negative news. This raises the concern that it is based on a statistical anomaly. A major component of the increase is the auto sector, and if that is carved out of the report a strange spike emerges in the data:

The spike comes from seasonal adjustments that may be skewed because normally July is a down month – so a lesser decline in July causes a positive blip up after adjustment. You can see in this comparison of non-seasonal numbers (red) vs adjusted numbers (blue) how a steep drop in actual production was turned into a steep increase in adjusted production:

The statistical blip is not showing up in other reports. The Empire State Manufacturing Index came out weaker than expected. The index is still positive at 7, and rose a bit from its July level at 5, but has fallen from a 32 level in April and a 20 level in June. When compared with the new orders component of the Empire State index, industrial production looks like it is rolling over towards a decline, not accelerating into a rise:

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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