Industrial activity posted a solid rebound in July, according to this morning’s update from the Federal Reserve. Production increased 0.6% last month, marking a robust acceleration from the flat-to-sluggish readings that have prevailed this year. July’s surprisingly strong rebound, in fact, is the biggest monthly gain since last November.
Meanwhile, the year-over-year pace in industrial output registered its first improvement in 2015. Output increased 1.3% last month vs. the year-earlier level. That’s still a weak trend, but the fact that the rate of growth inched higher after June’s tepid 1.1% annual gain hints at the possibility that the recent deceleration in growth has run its course. Much depends on whether we’ll see continued progress in the next round of industrial data, but for the moment the outlook is slightly brighter.
Today’s news follows yesterday’s upbeat numbers on retail sales for July, which revealed that consumer spending also popped 0.6% last month—a healthy rebound after June’s flat performance.
The latest reports offer support for arguing that recession risk is still low, although it’s not obvious that growth is set to heat up. Yesterday’s third-quarter GDP estimate from the Atlanta Fed was revised down to a miserly 0.7% advance from 0.9% previously. By comparison, Q2 GDP increased 2.3%.
There’s still a long way to go for Q3 data and so the bank’s weak GDP estimate may rise in future updates. Some analysts are already assuming as much. “The big July increase in industrial production is further proof that the US economy is expanding at an above-trend pace in mid-2015, after a weak start to the year tied to bad weather and the West Coast ports labor dispute,” advised PNC’s chief economist Stuart Hoffman in a research note this morning. “Economic growth in the last three quarters of this year should be about 3 percent at an annual rate.”
Next week’s update of the Atlanta Fed’s GDPNow estimate for Q3 will test Hoffman’s outlook. The bank is scheduled to revise its economic projection on Tuesday, Aug. 18.