Fisher Investments Editorial Staff

Production Chugs Along

By, 10/19/2010

Story Highlights:

  • US industrial production fell -0.2% m/m in September—missing expectations.
  • The fall in production has some worrying US economic growth is slowing.
  • But production is up overall over longer periods, and economic indicators like this fluctuate month to month—and don't really tell much about the economy or markets overall.


US industrial production unexpectedly fell -0.2% month-over-month in September after logging a +0.2% increase in August. It was industrial production's first decline since June 2009—a solid run for an important economic driver. Ever eager to back up bearish sentiment, the monthly dip in production had some fretting the industrial decline was yet another nail in the recovery's coffin.

But we'd caution against extrapolating what's essentially a blip in one set of data to the recovery at large. In the context of over a year's consistent growth, a breather may have been in order. And the economy almost never continuously fires on all cylinders. Sometimes certain segments slow as others grow. For example, the slight decrease in industrial production came as September retail sales (a clue to consumption, which makes up about 70% of GDP) exceeded expectations—rising for the third straight month, driven by improved auto sales (which, in turn, had the best month since March). Encouraged by rising sales, businesses increased factory orders more than expected in August—and stronger-than-expected end demand may bring more industrial growth in the coming months.

And let's not forget to look longer term—including September's monthly decline, industrial production was up +4.8% in Q3 q/q and +5.4% since this time last year. Furthermore, the New York Federal Reserve's October Empire State manufacturing survey stomped expectations last Friday—up 12.0 points to 15.7 versus expectations of 8.0. Both current conditions and forward expectations were robust. Though it's only one regional survey, the Empire State reading may indicate September's monthly dip was temporary.

Economic indicators fluctuate month to month—always—and small moves over a short time period don't really tell us much about the economy overall or stock market movements. US stocks were little bothered, rising a healthy +0.7%* on the day. There's still plenty of negative sentiment out there, but the same old stories (like an anemic recovery or impending recession) seem to be losing their power to sway markets—a positive sign that 2010, already in the plus category, may yet finish up healthily overall. 


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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