Industrial Production indicates that the “recovery” ended in 2014

It´s well known that manufacturing makes up less than 20% of the economy while the service sector, which gets far less attention, contributes much more to the economic pie. However, in contrast to services, which grows steadily irrespective of ‘wind strength’, manufacturing is highly sensitive to changes in interest rates and demand. That´s the reason Industrial Production is widely used in forecasting the economy.

The Fed´s “tightening rhetoric” that began in mid-2014, quickly had a negative impact on industrial production and capacity utilization. Total Industrial Production fell on the heels of the mining slump. Manufacturing just stagnated.

In the spring of 2016, realizing it had shot itself in the foot, the Fed´s tightening rhetoric was relaxed. That was not enough to bring about improvement, just sufficient to stop things worsening.

However, the “tightening rhetoric” begins to pick up again…

According to the news:

U.S. industrial production fell in January because unseasonably warm temperatures cooled demand for utilities, but underlying figures show modest progress for the manufacturing sector.

The immediate market reaction was interesting. The dollar and long-term yields shot up on the better than expected retail sales news. One hour later, when the industrial production data was released, yields recoiled while the dollar went into negative territory.

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