Saturday, 17 November 2012

US industrial production falls, recession risk rises

US economic data have been coming out negative in recent days, with superstorm Sandy not helping.

The trend continued on Friday, with the Federal Reserve reporting that industrial production fell 0.4 percent in October. The Fed said the storm is estimated to have cut industrial production by almost 1 percentage point.

Manufacturing output fell 0.9 percent but was little changed excluding the effects of the storm.

Capacity utilisation fell to 77.8 percent in October from 78.2 percent in September.

Based on the latest available data, including Friday's industrial production report, Dwaine van Vuuren has estimated that according to the NBER recession model, the probability of a US recession is now “in double-digit territory for the first time in this expansion” and that “unless the US Congress does something constructive with the fiscal cliff issue a recession is virtually guaranteed in very short order”.

However, van Vuuren also noted that leading indicators have provided a less pessimistic picture. He said that while these indicators show that recession risks are rising, “provided there are no external shocks . . . or self-inflicted debacles . . . then the economy should continue to pick itself up even if it languishes for a few more months as the effects of Sandy filter through”.

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