Industrial production rebounded in September after a steep decline in August. As the Federal Reserve noted when the August numbers were released, the sharp drop that month was probably due to the temporary effects of Hurricane Isaac. Today’s update appears to offer confirmation that the August retreat was a one-time problem rather than the start of a cyclical downturn. Indeed, industrial production continues to rise at a modest pace, advancing 2.8% on a year-over-year basis through last month. Today’s news brings one more positive contribution to the September economic profile, and one more reason for thinking that recession risk remains low.
Yes, September’s 0.4% rise in industrial production is relatively modest compared with recent history, but it’s enough of a gain to provide strong evidence for seeing August’s deep slide as a one-time anomaly.
More importantly, September’s rise is strong enough to raise the year-over-year change in industrial production to 2.8% from the previous annual gain of 2.6% through August. You can’t rely on one indicator for analyzing the business cycle, but to the extent that industrial production is informative it’s telling us that the economy continues to expand.
The slightly higher annual growth rate in industrial production implies that the economy isn’t weakening. It’s debatable if growth overall is improving, but it’s hard to argue that the cyclical demons have the economy by the throat.
History suggests that recessions don’t start with industrial production rising at a 2.6% year-over-year pace. Industrial production’s relatively upbeat trend is supported by a broad read on more than a dozen economic and financial indicators through September via last week’s update of The Capital Spectator Economic Trend Index. I’ll update CS-ETI before the week is out, but at the moment the incoming numbers for the September economic profile—including yesterday’s strong update on retail sales—remains encouraging for expecting modest growth generally.