The Big Four Economic Indicators: Industrial Production Down In January

Note: This commentary has been updated to incorporate the January data for Industrial Production.


Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

  • Nonfarm Employment
  • Industrial Production
  • Real Retail Sales
  • Real Personal Income (excluding Transfer Receipts)

The Latest Indicator Data

Today's report on Industrial Production for January shows a -0.31% decrease month-over-month, which was worse than the Investing.com consensus of -0.2%. The year-over-year change is -0.83%, up from last month's YoY decrease.

Here is the overview from the Federal Reserve:

Industrial production declined 0.3 percent in January, as unseasonably warm weather held down the output of utilities and as a major manufacturer significantly slowed production of civilian aircraft. The index for manufacturing edged down 0.1 percent in January; excluding the production of aircraft and parts, factory output advanced 0.3 percent. The index for mining rose 1.2 percent. At 109.2 percent of its 2012 average, total industrial production was 0.8 percent lower in January than it was a year earlier. Capacity utilization for the industrial sector fell 0.3 percentage point in January to 76.8 percent, a rate that is 3.0 percentage points below its long-run (1972–2019) average. [view full report]

The chart below shows the year-over-year percent change in Industrial Production since the series inception in 1919, the current level is lower than at the onset of 16 of the 17 recessions over this time frame of nearly a century.

Capacity Utilization

The Fed's monthly Industrial Production estimate is accompanied by another closely watched indicator, Capacity Utilization, which is the percentage of US total production capacity being used (available resources includes manufacturing, mining, and electric and gas utilities). In addition to showing cycles of economic growth and demand, Capacity Utilization also serves as a leading indicator of inflation.

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