Industrial production was flat last month, falling a bit short of expectations. Although it’s clear that the industrial sector has suffered a slowdown lately, today’s update was at least mildly upbeat in the sense that output in May rebounded slightly from April’s 0.4% drop. The manufacturing component fared a bit better, posting a 0.2% increase last month, the first gain since February.

Nonetheless, the nation’s industrial sector has slowed considerably in the spring. It’s not yet clear if the sluggish data is a prelude to bigger declines. The fact that May showed a bit of growth holds out some hope for stronger numbers in the summer. Another reason for thinking that industrial production may perk up comes from looking at data from elsewhere in the economy. Yesterday’s robust reports on retail sales and initial jobless claims, for instance, imply that modest economic growth will roll on in the months ahead.

The trend in industrial activity, however, looks sluggish. The year-over-year percentage change slipped again through May, posting a 1.6% advance over the previous year’s level. That’s the slowest pace in more than three years.

Does the declining rate of growth for industrial production signal trouble for the business cycle? Yes, at least in theory. But any one indicator is suspect for divining the big picture. We can’t dismiss the weakness, but it still looks like an isolated case of slow growth when you consider the upbeat news that still prevails across a broad array of economic and financial indicators.
For now, the overall trend for the economy continues to look encouraging, as last month’s update of the Economic Trend & Momentum Indexes reminds (I’ll published fresh numbers for these benchmarks next week). If and when we start to see industrial production’s malaise start to spread to other corners of the economy and the financial markets, there’ll be a stronger reason to worry.
Meantime, the downshift in growth for the industrial sector bears watching, but it still falls well short of a smoking gun once you consider the broad trend. As valuable as industrial production is as one of several macro metrics, it’s hardly infallible in isolation for evaluating the business cycle. Industrial production has been flat on a year-over-year basis a number of times through the decades without witnessing a new recession soon after. And since this indicator is still growing at an annual 1.6% pace, it’s not yet obvious that we’re seeing anything more than another rough patch for one slice of the economy.