Industrial production mounted a surprisingly strong comeback last month. The 1.1% surge in the Fed’s industrial production index—the biggest monthly gain in nearly two years—surprised many analysts, including yours truly. Surprising or not, it’s clear that October’s dreadful decline in this indicator (a decline that was revised further into the red in today’s update) was a temporary setback rather than a sign that the trend was slipping over the edge. Indeed, the cyclically sensitive manufacturing component in today’s report also registered a strong 1.1% increase in November.
The strength of last month’s rebound is almost certainly overstated due to the distorting effects of Hurricane Sandy, albeit for positive reasons this time. As the Federal Reserve notes in today’s release: “The gain in November is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy, which hit the Northeast region in late October.”
Whatever the source of last month’s rebound, the positive effects on the year-over-year trend is anything but subtle. Industrial production increased 2.5% for the year through November. That’s a sharp turn higher from October’s 1.6% annual gain. It’s also one more reason for assuming that the broad economic profile for November 2012 will eventually be marked as one of growth generally in the macro history books.
As I discussed on Monday, the overall picture for November is leaning towards one of expansion based on the incoming data. Several economic reports after I made that observation, that view is even stronger. Today’s industrial production news is certainly another batch of data on the side of growth; yesterday’s encouraging updates on jobless claims and retail sales are two more.
The speculation by some analysts that a new recession is overtaking the U.S. economy has been a stretch all along. The data in total never offered a compelling case for making such a claim. Yes, certain indicators have looked wobbly at times, and we’re sure to see more signs of unsteady economic reports in the weeks ahead. It’s also easy to think negatively if you spend too much time reading headlines about politics in Washington. All the more reason that clear, objective analysis of the broad trend is essential these days. That’s the primary goal of The Capital Spectator Economic Trend Index, which continues to estimate recession risk as a low probability event.
That could change, of course, and rest assured that one day we will have a recession. But based on the data through November, which is only missing a handful of numbers at this point, it’s becoming clear that the economy wasn’t contracting last month.