July’s Industrial Production

The Federal Reserve reported that industrial production in July increased by .5% as manufacturing, up 1.0% and mining, up .8%, were able to overcome the 2.4% drop experienced by utilities.  The manufacturing component was greatly aided by having General Motors and Chrysler come out of their short-lived bankruptcy and begin boosting production.  Strong evidence suggests this could continue for a month or more as the “cash for clunkers” plan appears to be boosting overall demand for new vehicles.  Year-over-year, industrial production has fallen 13.1%, a serious drop, but .5% better than the figure we saw last month.  Some economists will point to July’s increase as another sign the recession is coming to an end.  Others feel, given the one-off effect the government’s stimulus plan for junking old cars is currently having, that underlying growth is sluggish and will probably remain so since today’s purchases, somewhat artificially induced by a one-time exogenous factor, may rob from future sales as eager buyers look to unload their expensive-to-maintain vehicles today while the government is still incentivizing them.  Also showing a slight strengthening within this report was the data regarding capacity utilization.  Rising .4% to 68.5%, it suggests sales may be picking up.  An increase now, while unemployment remains high and may even continue to deteriorate, likely equates to stronger corporate profits when the third quarter numbers are announced next October.