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The Relationship between Manufacturing Production and Goods Output
|August 24, 2004|
|Note To Editors||
The latest edition of the Federal Reserve Bank of New York’s Current Issues in Economics and Finance, The Relationship between Manufacturing Production and Goods Output, is now available.
Economist Charles Steindel investigates the reasons why two
key economic measures—the manufacturing production component
of industrial production and the goods output component of
GDP—diverged during the most recent recession, even
though these series would appear to track the same types of
Steindel asserts that the discrepancy between the two numbers during the 2001 slowdown is, to a significant degree, consistent with the long-run tendency of goods output to grow more strongly than manufacturing production, but the discrepancy during this period was accentuated by the strength in consumer spending relative to business capital spending. Thus, the author concludes that researchers who analyze only the manufacturing production data have a limited view of the overall goods production process.
The author explains that beginning in mid-2000, manufacturing production experienced significant declines; it fell roughly 6 ¾ percent from June 2000 through December 2001. In the year and a half that followed, production grew very little. Goods output, which accounts for some 40 percent of GDP, saw very little drop in that period, and there has been substantial growth in both goods output and overall GDP since then. The divergence in these figures has caused some to question whether one indicator is flawed, casting doubt on the reliability of the overall GDP or industrial production series. This analysis finds no evidence of error in either series.
Charles Steindel is a senior vice president in the Business
Conditions Function of the Research and Market Analysis Group.