When economists try to predict future economic growth, they look to manufacturing output. According to the Wall Street Journal’s Real Time Economics, the Federal Reserve reported a surprising rebound in output with a growth rate of 0.8 percent. That almost erased the loss of 0.9 percent decline from the last month. Overall, industrial activity rose by 0.6 percent.
Economic growth is highly correlated with the production of goods. Over the last couple of months, we saw a decline in manufacturing, which caused concern that our economic recovery could be weakening. However, February’s data gives credence that the decline could have been due to poor weather.
When industrial output rises, that indicates that businesses are ramping up production in anticipation of consumers buying more goods. If more sales activity occurs, then that will lead to more hiring and incomes will rise. That is why we should be encouraged by this data.
Not all of the news was good, though. Home-related durable goods production fell for the second month. Even though this could also be weather-related, it is also possible that this could be a precursor to a slowdown in home sales. If that happens, then that will be a drag on economic activity.
When home sales fall, then that will lead to less spending on household goods and home furnishings. Both are necessary to drive economic growth. Therefore, let us hope that these last two months of decline do not become a pattern.
Only the future will tell us whether the trend in manufacturing will offset the slowdown in home-related goods.