Industrial Production May Be About To Weaken

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Recently the media has been awash in reports about the strength in the underlying industrial production reports.  However, one indicator may be signaling that the recent upticks in production may be about to fade. 

One of the points that we have been making lately is that the "pop" in economic activity, while still very weak, was most likely derived from the void that was created by the combination of the Japanese disaster trio of tsunami, earthquake and nuclear crisis, the debt ceiling debate in the U.S. and the Euro-Crisis.   This caused a coinciding retrenchment of both manufacturing and consumer during the second and third quarter period.  As the environment cleared there was a restart of the auto manufacturing and consumption cycle to meet pent up demand. This led to an uptick, again not a strong one, in the late 3rd and 4th quarters of 2011.

However, our concern has been that the void that was created by the combination of negative forces has now been primarily refilled and weakness will once again likely resurface.  Unfortunately, as you can see by our primary composite economic indicator, the economy not only has yet to fully recover from the previous recession by reaching new highs but is by far the weakest recovery on record.   Therefore, while we are hopeful of a "struggle through" economy mired between 2-2.5% growth over the next few years, the reality is that economy is extremely vulnerable to another downturn.

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Posted In: TopicsMarketsGeneral
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