Industrial And Manufacturing Production Decline: Whence The Business Cycle?

Interesting news even as we are flying partly blind (some government series are still lagging).

Here’re industrial and manufacturing indices, normalized to 2009M06=0 (recession trough).

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Figure 1: Industrial production (blue) and manufacturing production (red), both in logs normalized to 2009M06=0 (NBER defined trough). Orange denotes Trump administration. Source: Federal Reserve Board via FRED, and author’s calculations.

The 0.9% and 0.6% declines in m/m manufacturing and industrial output compare to 0.55% and 0.5% standard deviations over the 2009M06-2013M01 period. The manufacturing decline is therefore statistically significant. Last month’s numbers were also revised down. As noted in Reuters, automobile production seems to be driving this latest movement.

This data follows the retail sales data released yesterday which drove down nowcasts of GDP.

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Figure 2: GDPNow for 2014Q4, as of 14 February 2019. Source: Atlanta Fed.

Do we know what this means for the overall economy? Not really, because we are still lagging behind in reports for two of the indicators the NBER Business Cycle Dating Committee has historically focused on: real manufacturing and trade sales, and personal income excluding transfer receipts (latter will now be released on 3/1). Hence, the below graph looks pretty similar to that I presented nearly a month ago in this post.

(Click on image to enlarge)

Figure 3: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (teal). GDP in BEA interpolated until October 2017, Macroeconomic Advisers thereafter, all log normalized to 2009M06=0 (NBER defined trough).

Orange denotes Trump administration. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers, and author’s calculations.

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