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Manufacturing Drops, Ominously

A piece of bad economic news: Industrial production dropped unexpectedly in September:

Output at factories, mines and utilities fell 0.2 percent, the first decline since the recession ended in June 2009, according to figures from the Fed today. Another report showed builders were less pessimistic than projected this month. [...]

Economists forecast production would increase 0.2 percent, according to the median of 63 projections in a Bloomberg News survey. Estimates ranged from a decrease of 0.3 percent to a gain of 0.4 percent. The drop followed an unrevised 0.2 percent gain in August.

It isn’t good to read too much into any one month’s data. But why might this piece of bad news be particularly bad?

Because industrial production — manufacturing, mining and utilities, often seen as a economic bellwether — had previously seemed a bright spot in an otherwise gloomy economy. Total levels of production plummeted back to 1998 levels during the recession. But they bounced back quickly, as companies restocked their shelves and upgraded their equipment during the recovery.

Now, economists would expect the consumer to step in: Customers buy more goods, meaning businesses order more goods, meaning manufacturers make more goods, hiring workers in the process. But that hasn’t happened. The regular Main Street consumer remains constrained by high levels of unemployment and stagnant wage growth. So overall production has stalled out as well, and industrial producers see no need to add jobs. It’s just one more example of the sluggish overall picture.

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