Diane Swonk, Chief Economist
August 17, 2010 – 8:30 a.m. CT
Manufacturing Sector Fares Better than Housing
The Fed's index of industrial production surged to a better-than-expected 1.0% in July after being revised down to show a modest decline of 0.1% in June. Vehicle production held up particularly well, as plants that are usually closed for the month of July were kept open. We also saw the use of utilities increase as temperatures moved into record territory across the country.
Production is expected to moderate, however, now that inventories that were liquidated during the recession have largely been replenished. Vehicle production is also likely to slow, now that we are seeing more seasonal patterns to production and sales are beginning to moderate.
Separately, the producer price index edged up 0.2% in July, after two months of declines. Energy prices remained weak, but food prices moved up. Losses of wheat production in Russia have been so severe, that Russia has banned exports of wheat in recent weeks. The core (non-food and non-energy) producer price index increased 0.3%, which took some analysts by surprise. Almost all of that increase, however, could be attributed to a rise in light truck and car prices, which fell quite substantially during the recession. Those hoping to eliminate the risk of a broader-based deflation in the economy with this data will be disappointed.
The Bottom Line: Today's mixed economic news does little to reduce the risks of a double-dip recession. The Fed is expected to get more aggressive in its efforts to stimulate this fall, and we could see more evidence of that as soon as next week, when Fed chairman, Ben Bernanke, and European Central Bank chair, Jean-Claude Trichet, are both scheduled to speak at the Kansas City Fed's Jackson Hole, Wyoming annual retreat.
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