Industrial production implodes
The real economy in the U.S. is already in recession, even as we fight the effects of a financial market meltdown. Industrial production numbers for the United States came out and it was down a massive 1.1% for August. That means a negative number for GDP in Q3 is all but assured.
While we must be concerned about our banking system, I am also worried about the real economy.
Industrial production decreased 1.1 percent in August and was revised down in June and July to show smaller gains of 0.2 percent and 0.1 percent respectively. After little movement over the previous three months, factory output was down 1.0 percent in August, in part because of a drop of 11.9 percent in the production of motor vehicles and parts. Excluding motor vehicles and parts, the index for manufacturing decreased 0.3 percent. The output of mines declined 0.4 percent, and the output of utilities fell 3.2 percent, as temperatures in August were unseasonably mild.
Precautionary shutdowns in the Gulf of Mexico in advance of Hurricane Gustav partly curtailed refinery activity, petrochemical production, and the extraction of crude oil and natural gas; however, the estimated effect in August of disruptions due to the hurricane on total industrial production is estimated to have been less than 0.1 percentage point. At 110.3 percent of its 2002 average, total industrial production was 1.5 percent below its level of a year earlier. The capacity utilization rate for total industry fell to 78.7 percent, a level 2.3 percentage points below its average level from 1972 to 2007.
The last sentence here is the one to be most concerned with. Capacity utilization is now at a level that indicates recession for the United States. Industrial production is now lower than one year ago, another sign of recession (in the chart below, the shaded regions represent recessions).
With consumer spending, the only factor holding up the U.S. economy, under pressure, it has to be understood that the U.S. is in for a very hard landing. And the graph above makes clear that industrial production and recession have much further to go before we hit bottom in the economy.