Industrial Price Index Signals Recovery on Track

Global industrial production is on track to recovery, albeit in fits and starts, according to the trend signaled by the industrial price index compiled by The Journal of Commerce and the Economic Cycle Research Institute.

The index, a leading indicator of industrial demand that looks at pricing for a broad assortment of raw materials used in industrial production, has grown nearly 16 percent since the beginning of May, even after a slight decline the week of July 10.

And the latest measure was only 6.6 percent below the ECRI index a year ago, far better than the year-over-year declines of more than 60 percent the index saw for several months starting in November.

“ECRI's view is that the strong recovery in sensitive industrial materials price growth over the past couple of quarters is consistent with an ongoing recovery in global industrial production growth,” said Lakshman Achuthan, managing director of ECRI. “While broad economy recoveries will be uneven around the world in coming quarters, pretty much all industrial sectors, even in areas that remain mired in recession like Europe and Japan, should see improvement.”

Meanwhile, as ECRI predicted in April, the U.S. economy remains set to see the recession end sometime this summer. This is despite the general feeling out there that what economists are calling “green shoots” have withered, as reflected by the pullback in stock prices.

But the evidence for this seems to be based largely on backward-looking indicators like payroll jobs (a single month of lower-than-consensus data following a month of higher-than-consensus data). Logically, this should not undermine the strength in the leading indicators, which is why ECRI’s leading indexes remain in decisive cyclical upswings.