Industrial production is the King of Coincident Indicators. This morning’s report for September was negative, and August was revised downward, taking total production back below pre-pandemic levels.

Total production decreased -1.3% in September, and the manufacturing component decreased -0.8%. The August reading for each was revised downward by -0.3%. Nothing particularly special about that; in fact, the manufacturing component was a little weak compared with most recent months. Additionally, the July numbers were revised slightly (not significantly) higher and lower for each, respectively. As a result, manufacturing is now only 0.4% above February 2020, and total production is down -1.3% compared with just before the pandemic:

Needless to say, this is very much at odds with the continuing very positive ISM manufacturing index readings which we have gotten every month this year. The Fed regional manufacturing indexes, as well as the Chicago PMI, also remain positive, so I am not terribly concerned about one poor month (which needless to say may also be revised!).

This morning’s report is probably going to prompt some scary downward revisions to forecasts of Q3 GDP, which will be released one week from Thursday. But when we look at quarter-over-quarter numbers, industrial production is still up 1.1% from Q2 of this year. In the below graph, I’ve subtracted that number so that it norms to zero, to compare that increase with the past 30+ years:

As you can see, while it isn’t the strongest reading, it is higher than most quarters during the 3 expansions since 1989 and is nowhere near recessionary. So, while we’re almost certainly going to see a sharp *deceleration* from the blockbuster last several quarters in q/q GDP next week, in absolute terms I do not see any particular cause for concern.