The stock market may be booming, but slowing industrial production indicates trouble on the horizon. Businessweek notes that the Federal Reserve reported a 1.2% drop in industrial output last week, while America’s trade deficit reached a record $63.9 billion. The former is an admittedly volatile statistic, but this decline is the largest in three years. Private sector economists are noticing the trend as well:
An analysis of 27 major industries by the Manufacturers Alliance for Productivity & Innovation predicts that industrial activity in the U.S. is entering a period of sluggish growth that will last until the second half of 2014. MAPI chief economist Daniel Meckstroth expects that industrial production will grow by 4.5 percent in 2012 and only 2.3 percent in 2013, a full percentage point lower than his previous estimate of 3.3 percent.
Manufacturing has been a relatively bright spot during the sluggish economic recovery. If it slows down while the consumer sector is still struggling, the outlook for unemployment is worrisome. This is not good news in an environment where investors are nervous about the approaching “fiscal cliff” posed by Washington’s failure to get its budget under control (largely a function of the sputtering stimulus program), and where skepticism grows about the Fed’s determination to double down on quantitative easing.
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