Industrial Production Peaked 18 Months Ago, Where’s The Recession?

Industrial Production data from the Fed, chart by Mish.

Industrial Production fell steeply from September of 2022 December of 2022. The dive in manufacturing started a month later and was steeper.

Housing was extremely weak in this period as well. Real (inflation-adjusted) consumer spending was tanking and a huge divergence between Gross Domestic Income and Gross Domestic Product developed.

I called for a recession, actually, made the claim we were in one. Somehow, we never quite hit the tipping point. The following chart shows how unusual this is, just for industrial production alone.

Recession Lead Time After Industrial Production Peak

Recession Lead Times, Mish Calculation Based on Fed Data

Real and Nominal Retail Sales

Between April of 2022 and December of 2022, real (inflation-adjusted) retail sales fell from 234,066 to 224,411. That’s a decline of 4.1 percent.

Housing Starts Plunged in 2022

Housing starts from the Census Department, chart by Mish

I posted the above chart earlier today in Housing Starts Plunge 14.7 Percent, Multi-Family Very Weak For a Year

The period under discussion now is the end of 2022.

Housing starts peaked in March of 2022 at 1,803 and fell to 1,340 in January of 2023. That’s a plunge of 25.7 percent.


  • Housing Starts: -25.7%
  • Real Retail Sales: -4.1%
  • Industrial Production: -1.9%
  • Real Gross Domestic Income 2022 Q4: -3.0 Percent

Allegedly, there was no recession. And I don’t think the NBER will call one either.

Everything started to stabilize at the beginning of 2023. Why?

Enter the Inflation Reduction Act

President Biden signed the IRA on August 16, 2022.

On April 27, 2023, I noted The Inflation Reduction Act Price Jumps From $385 Billion to Over $1 Trillion

The cost keeps rising. Goldman Sachs now says the cost is $1.2 trillion with the uncapped tax credits now costing three times what Democrats claimed.

By Goldman’s estimate, the IRA tax credits will cost tens to hundreds of billions more than CBO estimated over 10 years.

Goldman says the difference in the EV credit estimates owes to its projection that more vehicles will meet the law’s “self-sufficiency” mineral and battery material conditions for the partial $3,750 consumer credit and full $7,500 credit. But even Goldman’s estimate for the EV credit could be low if Treasury loosely interprets the credit conditions, which is what auto makers are lobbying for.

Auto makers are also racing to take advantage of a tax credit for locally manufactured battery cells and modules by setting up plants in the U.S. Similar to Goldman’s estimate, an analysis last month by Mercatus Center fellow Christine McDaniel projected that the tax credit for battery production could cost up to $196.5 billion.

Ford’s Michigan plant with Chinese battery maker CATL alone could cost $1.5 billion annually in credits. Goldman estimates the tax credit could shave the cost of battery production by 35% to 42%, though EVs would still cost 17% more than vehicles with internal combustion engines. While tax credits will improve auto maker EV margins, it’s not clear whether they will make EVs profitable.

Goldman predicts the IRA will “drive” $3 trillion in climate investments—that is, reallocate $3 trillion in capital across the economy. Oil and gas companies will spend less on increasing production and more on developing carbon capture technologies, hydrogen and biofuels that are profitable only with the IRA’s rich tax credits. Expect energy prices to rise.

Eliminating the tax credits, Goldman adds, would constitute an “effective tax increase,” which Republicans may be loath to vote for. Florida Gov. Ron DeSantis last year vetoed a bill that would have scaled back rooftop solar subsidies after the solar lobby denounced it as a “tax.” Will Republicans have the courage to claw back the green handouts going to their business friends?

Then at the start of 2023, taxpayers got a huge tax break.

2022 vs 2023 Federal Tax Rates

(Click on image to enlarge)

 Anything Else? Yes! Anything Else? Yes!

Minimum Wage in States with Increases in 2023

For a discussion of the preceding two charts please see Explaining a Huge Inflationary Jump in Disposable Personal Income

And in the past three years, Biden has canceled $138 billion in federal student loans.

Those actions stabilized the economy in early 2023. Then minimum wages hikes kicked in and huge union wage increases followed.

That combination is how we avoided recession in late 2022 and early 2023.

So what do we do for an encore?

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