Industrial Production – Click to enlarge
As the stock market has scooted off into Fed driven bubble territory over the past year, industrial production, on the surface at least, appears to be expanding quite nicely. After briefly going negative in mid 2013, the annual growth rate turned upward and has been accelerating, reaching 4.3% in July. This measure is by units of production, therefore no inflation adjustment is required. It’s a pretty impressive performance for the nation’s factories, mines, and utilities.  Can the Fed take credit for that growth, or was there something else that drove it?
The answer is that Fed is not only not responsible for that growth, it is responsible for once again putting us in grave danger. The financial engineering bubble the Fed has enabled does not create real wealth, it only transfers it from one class of economic actors to another. In this case, it has gone from a dwindling middle class to the bankers and corporate plutocrats who control the levers of power. That’s a story which I have covered in these pages for years. You know the details.
The industrial production data provides some real insight into the drivers of real growth in the US economy, such that it exists.
Media pundits and the Wall Street establishment like to back out defense and aviation to arrive at a core figure for industrial production, but as Alan Tonelson pointed out, while extremely volatile, their contributions to the total index are relatively small and have little impact on the trend over time. I like to deconstruct the index differently to get a better idea of how the US economy is really doing.
In fact, take away energy and the rest of the US economy isn’t doing that well. In some ways, it’s not growing at all. What growth there is appears entirely due to the energy boom and its ripple effects. Thank goodness for that boom and the technological changes that led to it. Environmentalists may feel differently, but without that growth in energy the US economy would be in even deeper trouble than it is.
