Although recent reports have pointed to what could be the start of an economic recovery, there remains plenty of evidence that the nation isn't quite there yet.

The Federal Reserve's Industrial Production and Capacity Utilization report, released today, shows a 1.1 percent decrease in industrial production in May, after falling 0.7 percent in April. Industrial output has fallen in 16 of the last 17 months, and the most recent output dip is the largest year-over-year decline since 1946.

Industrial production, which is one of four key indicators used to judge whether the economy is in a recession, has been down 14.8 percent since December 2007, MarketWatch says.

"The data suggest that any slowdown in the pace of the recession that many economists have pointed to in recent weeks may be uneven," Reuters notes.

According to the Federal Reserve, manufacturing output fell by 1 percent in May and was more than 15 percent lower than in May 2008. Factories' operating rates last month also hit a record-breaking low (65 percent) as motor vehicle plants were shut or idled. The largest decreases in the production of durable goods came from decreases in motor vehicles, parts and machinery. Although not completely offsetting the loss of production in the automotive sector, plants producing metals, aerospace and other transportation sector goods posted gains.

"Despite some optimistic readings from purchasing managers and confidence indicators, the fact remains that manufacturing activity continues to decline," Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, says.

Sectors outside of manufacturing didn't fare too well in May either. Output of mines dropped 2.1 percent and output of utilities fell 1.4 percent, the Federal Reserve reports. Overall, the total industrial output in May was 13.4 percent lower than the same month last year. The rate of capacity utilization, a measure of slack in the economy, slid to 68.3 percent, 12.6 percent below the average for 1972-2008.

Reports are consistent with an economy still in recession and contracting. "The rate of decline in industrial production is generally decelerating," Meckstroth says, "but there just is not enough positive momentum at this point to offset the severe ongoing inventory liquidation."

Surprisingly, against the 1 percent drop in the production of construction supplies last month, builders were actually building houses. According to the Census Bureau, housing starts jumped 17.2 percent in May to a rate of 532,000. The increase was led by a 62 percent gain in new construction of multi-family dwellings, MarketWatch reports. Still, May's housing starts total is 45.2 percent below the rate of May 2008.

"The May housing starts figure was a better-than-expected number, but still is just a modest recovery from earlier weakness. It's a sign that housing is stabilizing, but it's too early to say that we've seen the bottom," Gary Thayer, senior economist at Wells Fargo Advisors, told Reuters. "We'd probably need to see several months of stronger sales and better housing starts to give a convincing signal that we're going to see a housing recovery."

Building permit authorizations, which give a sense of future home construction, also went up in May by 4 percent to 518,000.

But consumer demand across the board, from construction to energy, remains low. Prices for materials and components for construction inched down 0.1 percent in May, and the producer price index for finished goods overall increased by a mere 0.2 percent last month, the Department of Labor reports.

The 2.9 percent increase in energy goods prices offset the 1.6 percent decrease in the producer price index for finished consumer foods and the 0.1 percent drop in prices for finished goods (not food or energy). "Without energy, producer prices are quite soft," according to Charmaine Buskas, senior economics strategist with TD Securities. "Moreover, on a trend basis, producer price inflation remains soft reflecting weaker demand." (Source: MarketWatch)

The producer price index has dropped 5 percent in the past year, the biggest year-over-year decline since 1949, MarketWatch says, adding that such a drop could spark deflation worries, counteracting the inflation worries of some economists.

With all the fluctuations between recent reports, it's hard to tell which direction the market is going to go from here. Jim Awad, managing director at Zephyr Management, commented to Reuters that "[today's data] will counteract the positive effects of the other data, which will leave the market on its own."

Resources

Industrial Production and Capacity Utilization
U.S. Federal Reserve, June 16, 2009

U.S. Industrial Production Slumps 1.1% in May
by Rex Nutting
MarketWatch, June 16, 2009

Instant View: Housing Starts Jump; Industrial Production Down
Reuters, June 16, 2009

MAPI Analysis on Industrial Production: Still Looking for Positive Momentum
by Daniel J. Meckstroth
The Manufacturers Alliance/MAPI, June 16, 2009

New Residential Construction in May 2009
U.S. Census Bureau, June 16, 2009

U.S. May Housing Starts Jump 17.2% to 532,000 Rate
MarketWatch, June 16, 2009

Producer Prices Rise 0.2% in May on Energy Prices
by Ruth Mantell
MarketWatch, June 16, 2009