Industrial Production – An oil & auto tale

In February, industrial production had a banner month, rising far above expectations. What´s going on?

The story of industrial production over the last few years is quite straightforward. For the first five years following the end of the great recession, industrial production was rising. In late 2014, growth fizzled and industrial production began to contract.

In late 2016, we observe what came to be known as the “Trump bounce”. That proved to be temporary, and by mid-2017, industrial production was again trending down.

Then the late summer of 2017 witnessed the big storms (hurricanes). Industrial production stepped-up to satisfy replacement and reconstruction needs. That proved also temporary. Nevertheless, February 18 saw an unexpected upturn. What´s up?

As the next charts show, the upturn was a reflection of oil and autos.

Automobile assembly for January was revised down significantly, but showed a big bounce in February. The reasons are unknown. After jumping in the aftermath of the storms, vehicle sales have gone down to the weak levels seen last spring, which makes the increase in auto production mysterious.

Oil production has been trending up since the oil price lows of mid-2016. In January it dropped, bouncing back in February. Was there stoppage in January? Since peaking in late January, oil prices are down.

Bottom line: Since the economy remains in the “upswing phase”, although it´s an exaggeration to describe it as buffeted by tailwinds, experiencing good months in parts of it is not surprising. What´s been missing is a uniform rise in most parts of the economy. Given Fed proclivities, it is unlikely this will happen now.

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