One Month in Context

One of the easiest things to do is to make a projection or even a very definitive statement based on one month’s data.

A case in point is the disappointing September number for US Total Manufacturing (not seasonally adjusted ). September came in 1.21% below August, and various sources cited how the manufacturing recovery had stalled and called into question the durability of the manufacturing recovery going forward. The September decline was a lot like 2015’s drop, and 2015 was a down year for US Total Industrial Production. The September drop was also steeper than the five-year average of 0.50% but thankfully about one half of the September 2008 drop. Taken by itself, September could be discouraging and could cause some businesses to question their plans for aggressive behavior as we finish the year and head into 2021.

Putting September into a broader context yields a much different point of view. The 3/12 rate-of-change and the 3MMA are both still rising through the September data, showing that the business cycle momentum remains positive and that businesses should plan on more activity in the last quarter of the year and into 2021. Regular readers of ITR recognize that the 3MMA smoothing technique is specifically designed to reduce monthly noise, as it renders a more reliable trend. The 3/12 rate-of-change is still rising in Phase A and is indicating more upside business cycle pressures. Look for the 3/12 to upward-pass the 12/12 in the next month or two. This will provide confirming input into the sustainability of the business cycle rise.

It is also good to note that a broad category such as Total Manufacturing does not necessarily translate into individual manufacturing sectors, such as high-tech or automobiles. It is important to determine which subset you identify with and use that series as your benchmark and guide for determining future trends for your company. You may relate better to High-Technology Manufacturing (not seasonally adjusted), which moved higher from August to September. The rate of rise was milder than in the previous two years, but it still moved higher. US Automobile Production declined 2.08% from August to September, and that is milder than the 10-year average of -2.85%.

Discover your industry benchmark and the related leading indicators, and you will safely move past the monthly noise and the uncertainty it can bring. Your rate-of-change relationships will enable you to act with confidence as you move into a more knowable future.

Alan Beaulieu
President