New Fed Figures Show Manufacturing Nearing a Recession and Automotive in One

Alan Tonelson |

Despite recent gloomy private sector and regional Fed surveys, the Federal Reserve's new December industrial production figures revealed that real manufacturing output dropped a bare 0.05 percent on month, and revisions barely worsened the picture. Yet the weak year-end number left such output down on net for five months – one short of a technical recession. And the automotive sector, which has led industry's post-Great Recession comeback, sank into technical recession. Full-year 2015 manufacturing after-inflation growth of 0.74 percent was the lowest such figure since the last recession began, and less than 20 percent as strong as 2014's 4.16 percent increase. Since the Great Recession began eight years ago, manufacturing's inflation-adjusted output is still down 1.51 percent.

Here are the manufacturing highlights of the Federal Reserve’s new release on December industrial production:

>Manufacturing’s inflation-adjusted output dipped in December by only 0.05 percent on month, and despite grim recent regional Fed and private sector survey reports, revisions were only slightly negative. Nonetheless, real output levels are now down on net over a five-month period by 0.04 percent, meaning the sector is approaching a technical recession (two straight quarters of cumulative output decline).

>In addition, the automotive sector, which has led manufacturing’s bounce-back following a deep post-financial crisis dive, fell into technical recession, with real output down on net 1.26 percent since last May. The sub-sector’s fall-off was led by vehicle production, where a 3.19 percent sequential drop was the biggest monthly decrease since August’s 7.92 percent.

>The December figures – which are still preliminary – also reveal that after-inflation overall manufacturing production improved in 2015 by only 0.74 percent. That represents the sector’s worst annual growth figure since 2009, when it actually sank by an inflation-adjusted 2.94 percent.

>Moreover, the December number was manufacturing’s lowest year-on-year growth level since January, 2014’s winter-affected 0.19 percent.

>The December, 2014-2015 growth rate was also much worse than the 4.16 percent real output rise achieved between the previous two Decembers.

>Largely as a result, real manufacturing output remains 1.51 percent below its levels at the onset of the last recession – fully eight years ago.

>November’s previously reported sequential manufacturing gain of 0.11 percent was revised down to a 0.16 percent decline. But October’s 0.36 percent rise is now pegged at 0.37 percent. September’s 0.18 percent decline was upgraded to a -0.13 percent figure. And August and September numbers were downgraded slightly.

>Even though automotive production plunged in December, real durable goods output managed a 0.11 percent sequential advance. That gain contrasted with a 0.23 percent month-to-month drop in non-durables’ after-inflation output, and reversed the trend that had held between these super-sectors in recent months.

>Yet revisions for durable goods were negative. The latest changes resulted in November’s 0.22 percent monthly decline now reported as a 0.49 percent drop and October’s 0.59 percent improvement being downgraded to 0.53 percent.

>Durable goods annual output gains are also depressed. The full-year 0.49 percent production increase was the super-sector’s worst performance since its own 5.26 percent drop in recessionary 2009. Moreover, it, too, was much lower than its 5.36 percent jump from December, 2014-December, 2015.

>At the same time, the December yearly durable goods real production improvement was still better than November’s downwardly revised 0.09 percent – the worst year-on-month performance since July, 2013’s 0.66 percent decline.

>Inflation-adjusted durable goods production is now only three percent percent higher than in December, 2007, when the last recession began.

>Not only was the December monthly non-durables’ real output drop its first since June, but the latest revisions were negative.

>November’s initially reported 0.50 percent sequential inflation-adjusted production increase was cut by more than half – to 0.24 percent. And October’s 0.34 percent rise was similarly downgraded, to 0.17 percent.

>On a year-on-year basis, inflation-adjusted non-durable goods output more than doubled the growth rate for durables, but its momentum slowed. December’s 1.06 percent non-durables real increase was decidedly weaker than November’s 1.60 percent – which itself was revised down from 1.64 percent. October’s year-on-year advance was much stronger – 2.46 percent – and in fact was revised up from 2.23 percent.

>The December annual output increase was also non-durable’s worst since June, 2014’s 0.86 percent, and was also much lower than the 2.84 percent increase recorded for the previous December.

>Non-durable goods production is now down by 7.07 percent since its pre-recession peak in July, 2007.

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