Industrial Production Fell in September, Now What?

Oct. 18, 2010 - PRLog -- Andover, Massachusetts October 18th, 2010 –  The Federal Reserve today reported that industrial production which includes mines, factories, and utilities fell in September by .2% compared to August. Companies that had been restocking their inventories and replacing worn out machinery over the past 4 months have pulled back on this as consumer demand remains weak and inventory levels are at normal levels again. This is the first decline in production among these important sectors of the economy since the recession ended in June 2009 and could point towards continued weakness in manufacturing.

While this may seem like all bad news many economists knew that this would happen. The trend over the past 30 years indicates that every economic recovery shows rapid gains in production for 6-12 months after exiting a recession and then it levels off. This same pattern happened in the early 1980’s as well as in 2001. Since we expect consumer demand to remain tepid at best, are we looking at a prolonged slump in industrial production as well? The answer is no and we can thank the global economy for that. Our exports have become increasingly more competitive over the last year as the US dollar has lost some of its value compared to foreign currencies. Electrical components as well as airplanes have seen record exports over the past 6 months. What this means is that our US made products are becoming cheaper and more competitive on the international scene. This is causing a boom in exports and should see our industrial production expand over the next 6-12 months. Stay tuned, not only does consumer demand impact this statistic but as I just mentioned our currency’s value does as well which makes this an extremely complicated and interesting situation to keep an eye on.

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