In what must be one of the scariest data points for equity bulls, Industrial Production just printed above all economist's estimates with its largest rise since Dec 2010. This 2.5 sigma beat of expectations is the biggest beat since December 2010 and, given that it was data that Ben Bernanke did not have at his previous FOMC meeting, we suggest, ever so humbly, that surely this will play into his qualitative assessment of the economic thersholds and reduce the likelhood of him accelerating his bond-purchases scheme. The driver of such exuberant Industrial Production... Motor Vehicle manufacturing; which as we already know produced the largest channel-stuffing debacle in history. Sustainable? We don't think so... As previous downward revisions appear to have provided a much bigger than expected rebound from Sandy-scuppered prior levels.
A quick glance inside the data shows that a major part of the "beat" was the October revision from -0.4 to -0.7, a number which will be further revised downward in 4 months: "The Federal Reserve Board plans to issue its annual revision to the index of industrial production (IP) and the related measures of capacity utilization at the end of March 2013. The revised IP indexes will incorporate detailed data from the 2011 Annual Survey of Manufactures, conducted by the U.S. Census Bureau. Annual data from the U.S. Geological Survey regarding metallic and nonmetallic minerals (except fuels) for 2011 will also be incorporated. The update will include revisions to the monthly indicator (either product data or input data) and to seasonal factors for each industry. In addition, the estimation methods for some series may be changed. Any modifications to the methods for estimating the output of an industry will affect the index from 1972 to the present." And remember what happened when the Fed "revised" consumer credit data to the point it was both meaningless and showed huge contractions to credit in the past? Expect the same, but by then today's print will be long forgotten.
As for the specific reason given for today's surge? Why Sandy of course, which apparently had a huge downward impact in October (all 5 days it impacted October data), and served as a boost to November data:
Manufacturing output rose 1.1 percent in November following a decrease of 1.0 percent in October. Nearly all the decline in factory output in October is estimated to have been related to Hurricane Sandy, and the increase in November reflects a post-hurricane rebound in production as well as the solid advance in the output of motor vehicles and parts. Within manufacturing, increases were widespread in November across both durable and nondurable goods industries. The factory operating rate rose to 76.6 percent, a rate 2.2 percentage points below its long-run average.
The production of durable goods rose 1.6 percent in November. Output increased in all major categories of durables other than computer and electronic products, and aerospace and miscellaneous transportation equipment, which both decreased. Gains of more than 2 percent were recorded in the indexes for wood products; for primary metals; for electrical equipment, appliances, and components; for motor vehicles and parts; and for miscellaneous manufacturing. Capacity utilization for durable goods manufacturing was 76.7 percent, a rate 0.4 percentage point below its long-run average.
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