Tuesday, December 8, 2009

A couple of wods on October Industrial Production

IP came in at 6.5% yoy in October, significantly above expectations of -3.0% yoy. Part of the figure reflects base-year effects, as last October had fewer working days due to Ramadan holiday. While TURKSTAT will not release seasonally-adjusted figures until the end of the moth, my own calculations bring the raw 6.0% monthly increase to 1.5-2.0% after adjusting for seasonality and working days, which is still quite an accomplishment.

Without looking at the data, one would speculate that the strong figure is due to the special consumption tax breaks working their magic, but a casual look at data reveals that the rise in IP is too broad-based across sectors. It is normal for IP to rise after the destocking going on for the past few months, but such a strong rebound is rather surprising.

Moreover, IP is totally out of whack with other real sector indicators released earlier such as PMIs, real sector confidence and most importantly capacity utilization, which usually do a decent job of forecasting IP. That's why economists were so off the target this time around.

In sum, today's release is too good to be true, and a revision might bring it back to earth in a couple of months. In this sense, Thursday's November capacity utilization will provide a reality check- a strong reading there would make me feel more comfortable towards today's figure.

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