New October Fed Figures Show Manufacturing Recession is Over

Alan Tonelson |

The Federal Reserve’s new October industrial production show that manufacturing ended the technical recession it had suffered since last November, as the sector posted its first inflation-adjusted output gain since July. Industry’s year-on-year growth, however, remains sluggish – especially in durable goods, where annual real output increases hit their lowest level in nearly two years – suggesting that record trade deficits are suppressing production. In this vein, real manufacturing output still hasn’t recouped all of its recessionary losses, with real production remaining 1.23 percent below pre-downturn highs. Nonetheless, October’s year-on-year non-durables after-inflation production advance continued a recent trend of annual growth pickup which actually exceeds the rates achieved by durable goods.

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

>Manufacturing in October broke out of the technical recession that began last November, as monthly output recorded its first real gain (0.42 percent) since July.

>The Fed release also revealed slightly positive constant-dollar manufacturing output revisions for recent months. September’s real sequential output shrinkage is now estimated at 0.06 percent, not 0.08 percent. August’s decline – already revised up from 0.49 percent to 0.35 percent – is now reported as only 0.14 percent. But July’s increase – originally pegged at 0.89 percent and then raised to 1.06 percent was reduced to 1.03 percent.

>The October figures, however, still left total after-inflation U.S. manufacturing production 1.23 percent below its level when the last recession began – nearly eight years ago (December, 2007). This poor long-term performance indicates the huge growth – and employment – cost exacted by the strong rebound in manufacturing’s trade deficit since the recovery began. Indeed, in current-dollar terms, the manufacturing trade deficit stands at an all-time monthly high, and is on course for a new annual record.

>On a year-on-year basis, real manufacturing output rose by 1.94 percent in October. That’s better than September’s 1.81 percent gain – which was revised up from 1.58 percent – but lower than August’s 1.95 percent and July’s 1.98 percent (both upwardly revised). Yet the October advance was much slower than the 3.30 percent inflation-adjusted growth achieved the previous year.

>Real output of durable goods – the largest super-sector in manufacturing – also broke a two-month sequential losing streak in October, as its production rose by 0.49 percent.

>Durable goods revisions were mixed. September’s initially reported 0.16 percent drop was revised down to 0.26 percent. The August decline, originally pegged at 0.87 percent, but already revised up to 0.53 percent, is now reported at only 0.42 percent. But July’s big output surge – initially reported at 1.17 percent and then revised up to 1.27 percent – is now judged to be 1.25 percent.

> Yet year-on-year, durable goods output in constant dollar terms rose by 1.23 percent in October. This growth rate was not only lower than September’s upwardly revised 1.24 percent, August’s upwardly revised 1.91 percent, and July’s 1.64 percent. It was the super-sector’s worst such performance since January, 2014’s 0.76 percent, which was impacted by the severe winter.

> The newest year-on-year durable goods numbers also compare poorly with growth between October, 2013 and October, 2014 – which was 4.68 percent – and for similar figures for previous months. The weak performance in this heavily traded super-sector also points to the damaging effects of sky-high manufacturing trade deficits.

>Inflation-adjusted durable goods production is now 3.27 percent higher than in December, 2007, when the last recession began.

>Non-durables’ real output rose by 0.34 percent in October and revisions were generally positive here, too. September’s initially reported 0.01 percent advance is now reported at 0.17 percent, and August’s figures – originally pegged at a 0.03 percent gain and then revised to a 0.14 percent drop – is judged to be a 0.19 rise. July’s strong increases, however, were downgraded to 0.77 percent, after being originally reported as 0.58 percent and then revised up to 0.81 percent.

>On a year-on-year basis, inflation-adjusted non-durable goods output climbed in October by 2.76 percent – its fastest growth since February. Moreover, September’s annual increase was upgraded from 2.03 percent to 2.46 percent, and August’s from 2.18 percent to 2.45 percent. July’s previous 2.41 percent annual real growth was revised down to 2.35 percent.

>Notably, these latest annual gains for non-durable goods exceeded those for durable goods, in contrast to the pattern that has held for most of the recovery.

> In fact, October’s year-on-year non-durable goods after-inflation production increases continued a trend toward faster annual growth within the super-sector. From October, 2013 to October, 2014, such output rose by only 1.77 percent. The comparable figures for September and August were 2.05 percent and 1.70 percent, respectively.

>Non-durable goods production, however, is still down by 6.79 percent after inflation since its pre-recession peak in July, 2007.

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