On April 1st, the Federal Reserve Board published their annual revision to the US Industrial Production data. Most years, the data adjustment is benign and does not alter our forecasts considerably. This year was not one of those years. The Federal Reserve lowered the US Industrial Production growth rate in 2015 from 1.3% to 0.3%. The good news is that this revision
did not change the shape of the business cycle, just altered the amplitudes. This helped in terms of keeping much of our prior analyses intact (the second half of 2016 will be stronger than the first half, growth in 2017 and the majority of 2018).
We are seeing signs of accelerating growth in US Industrial Production for the second half of 2016/early 2017 in several of our leading indicators. The Purchasing Managers Index 1/12 rate-of-change (which leads US Industrial Production by approximately 9-12 months) formed a low in November 2015. We have seen a rise long and large enough to make this a definitive signal of accelerating growth in US Industrial Production as soon as 3Q16. Additionally, we are seeing tentative rise in the ITR Leading Indicator and the Conference Board’s US Leading Indicator. These signals, coupled with the trend in Corporate Bond Prices, all indicate a stronger second half of 2016.
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