Industrial production: Another irrelevant statistic?AdvantageVoice® Blog—
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist
The economic reports delayed by the government shutdown continue to be released at a steady pace, but investors would probably be better served by not putting too much emphasis on any given set of numbers. Industrial production increased 0.6% in September. For the third quarter, industrial production advanced at a middling 2.3% annualized rate. Manufacturing increased at a 1.2% annualized rate in the third quarter. Capacity utilization—a measure related to the amount of slack in the industrials sector, much like how the unemployment rate is related to the slack in the labor market—increased to 78.3%, which is 1.9 percentage points below its average from 1972 to 2012.
The industrial production number, much like data being dribbled out by various government agencies that were withheld during the partial government shutdown, may be wholly irrelevant.
It’s not that the data are delayed that makes them irrelevant but that the data are mainly from September. They do not capture what effect the partial government shutdown and debt ceiling debate of October had on the economy. Whether the effects are direct through the purchase or provision of goods and services by the government, or through the indirect effects on consumer and business activity, the September data might not matter.
Consumer confidence numbers declined significantly, but purchasing manager indexes stayed in expansionary territory. Besides, consumer confidence is fickle and does not correlate well with actual consumer activity. Maybe the effect of the government shutdown is 0.3% annualized on broad measures of economic activity, like gross domestic product, but this proves economists have a sense of humor: We use decimals. Measuring something as large as an economy is fraught with peril and pitfalls. Government and private sector economists do a herculean job at this; however, the measures are still imprecise, and a move of 0.3 percentage points might not mean that much. It could just be noise.
The data trickling out of government agencies may be reminiscent of that philosophical question, “If a tree falls in the forest and nobody is there to hear it, does it make a sound?” In this case, I think the question could be better formulated as, “If a tree fell in the forest two months ago, does anyone care, given that the whole forest has been rezoned as a shopping mall since then?” This is why earnings and guidance given by executives on what’s likely to come are more relevant to investors than statistics from September.
The views expressed are as of 10-28-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.