Industrial Production Posts a Welcome Surprise

By Bondsquawk

July 17,2012

According to Deutsche Bank’s Global Markets Research by Joseph LaVorgna, Industrial Production data was a welcome surprise as it was much better than previously anticipated.

June industrial production increased +0.4% after the prior month was revised down 0.1% to ‐0.2%. This pushed the capacity utilization rate up 0.2% to 78.9%, thereby matching its post‐recession high.

The increase in capacity utilization would help ease the fears of a slowing economy and may make policy makers think twice over another round of stimulative measures.
Here is an assessment of the figures.

The growth in production was broad‐based led by a bounce in manufacturing production (+0.7%) which was underpinned by a healthy gain in the production of computers and electronic components (+1.0%), a key input into capital spending in the GDP accounts.

The June uptick in Industrial Production differs with the below par readings of 49.7 in the most recent ISM survey which suggested the potential for contraction in the economy. The report suggests that going forward both the ISM survey and Industrial Production could increase in tandem given last year’s pattern.

The rise in industrial production stands in contrast to the June ISM survey which registered a 49.7 reading. A similar profile emerged last summer as well. The July 2011 ISM survey printed 51.4 while industrial production grew 0.9%. We expect the pattern to repeat again this year. Moreover, the spread between ISM new orders and inventories remains positive, which typically is associated with ISM readings above 50.

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