Industrial Production may drop when circumstances get in the way of production. For example, the Federal Reserve reported that shutdowns in the Gulf of Mexico resulting from Hurricanes Gustav and Ike shut down a lot of oil- and gas-related production in September.
The disastrous effects of the hurricanes crippled production, resulting in an IP drop of 2.8%, the biggest month-to-month drop in 34 years. Moreover, September's dive followed a decline of 1.1 percent in August, caused by vast cuts in the production of cars and car parts.
Overall, the third quarter of 2008 saw a decline of 6%, nearly twice as big a drop as the quarter before.
In brighter times, like the last few months of 1997 when most industry groups were growing, production is high. The fourth quarter of 1997 saw the strongest increase in output in recent history: a quarterly increase of 10.7%.
Production levels were at their worst during the recessionary period of the early 1990s. Similar to the situation last month, a key contributor to the production decline was the automotive industry: In the first quarter of 1991, automakers cut back production to levels from a decade earlier, to even out inventories with sales. Production for that period was down 7.5%.
Returning to our 10-point scale, if we set -7.5% IP equal to 0, and 10.7% IP equal to 10, we're now at ...
Industrial Production: .82
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