Are we starting to come out of the soft patch just as investors are discounting a double dip recession? I think so. The latest evidence is in July’s industrial production report for the US. Let’s review:
(1) Industrial production rose 0.9% in July, while manufacturing production increased 0.6%. There was a 2.8% surge in the output of utilities, as extremely hot weather increased demand for electricity. Manufacturing is at a new cyclical high and at its best level since October 2008.
(2) Industrial production was disrupted in the US by a shortage of parts made in Japan following the devastating earthquake and tsunami over there in March. It fell 0.3% during April, followed by increases of 0.2% in May and 0.4% in June. (Both May's and June’s increases were double the preliminary estimates.)
(3) Auto assemblies were hard hit by the shortage of parts. They fell from 8.8 million units (saar) during March to 7.9 million units during April, remaining at that level through June. They jumped 10.6% during July to 8.7 million units. They are likely to make new highs for 2011 over the rest of the year.
(4) Excluding auto assemblies, manufacturing output rose only 0.3% during July. The problem seems to be that the IT industry still had some parts shortages in July. The total output of selected high-tech industries was little changed in July. Computer hardware production did rebound 1.1% in July to a record high. However, communication equipment output declined 0.4%, and semiconductor output fell 0.5%.