Wednesday, February 17, 2010

Production Pullback: Industrial Production January 2010

Today, the Federal Reserve released their monthly read of industrial production showing notable growth in total industrial production and the first year-over-year increases seen in some 21 months.

It's important to recognize that the recently launched Ceridian-UCLA Pulse of Commerce Index successfully predicted this months year-over-year total production index increase with exceptional accuracy.

While this report appears very positive and leans in favor of recovery, the significant inventory restocking, "cash-for-clunkers" and "cash-for-homedebtors" and associated dynamics have also played an important and likely temporary role in today's results.

“Final product” consumer durable goods increased 2.69% on a month-to-month basis jumping some 14.73% above the level seen just one year ago.

It’s important to note that although the Federal Government's “cash-for-clunkers” policy breathed life into the vehicle components of the durable goods category, home appliances, furniture and carpeting still remains weak with a decline 7.53% on a year-over-year basis.

Construction supply production, while still continuing to show a severe contraction over all, has just seen the first year-over-year increase to it's wood products component in some 41 months up 1.96% since January 2009.

The motor vehicle and business vehicle components are clearly indicating that the government sponsored bounce and residual effects provided by the "cash for clunkers" policy appears to have now likely peaked out.

Finally, HVAC (heating ventilation and air conditioning) while reflecting the substantial pullback and continued down trend of fixed commercial investment, managed to increase a notable 3.41% on a year-over-year basis.

The following charts (click for larger) show the overall consumer durable component along with the Home Appliances, Furniture and Carpeting sub-component on both a time series and year-over-year basis, construction supply production with the wood products sub-component, and general and business related vehicle production all overlaid with the last two recessions for comparisons purposes.