Monday, May 11, 2009

March Industrial Production: Still No Sunlight

If you consider the second derivative a valid indicator, than today's IPI reading may give some hope that things are getting better (if the High Court decision on Perak wasn't enough for you).

While a little worse than the consensus, March IPI growth of negative 14.4% y-o-y is at least showing a slowdown in the slowdown compared to Febuary's reading of minus 14.6%. The actual log differences are actually a little worse at 15.5% versus February's 15.8%, but this is the first uptick in the IPI and all its constituents since last July (index numbers; 2000=100):

Monthly growth numbers are even more positive, with the main index up 6.1% in log terms (log monthly difference; non-annualised). Pretty strong stuff...

...until you put in seasonal adjustment. March industrial production is almost always higher than Febuary's for the simple reason that March has more working days. Making that adjustment yields a more disappointing story (index numbers; 2000=100, x11 seasonal adjustment):

...and monthly growth numbers (except for Mining) all turn negative instead (log monthly difference; non-annualised):

While anecdotal evidence is pointing to an improvement in orders and capacity utilization, I don't think I'm ready to call a bottom just yet. I'm thinking we're in an inventory adjustment phase at this point, where firms are having to rebuild stocks that were run down from the savage cut in output between August and February. The implication is that we might see a further dip as soon as next month, as supply adjusts to the new demand realities.

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