Monday, January 18, 2016

This is still just a commodities recession (with a side of climate)

  - by New Deal democrat

I've been ridiculing Doomers - who always and everywhere only see bubbles, if data is going up, and crashes if it is going down - ever since 2009.  I fully intend to continue doing that, but it is no falsehood to say that in right now they have their most reasonable case since that time.

A good and perfectly reasonable presentation of the recession case was made Friday by Wolf Richter, who pointed out that Industrial Production has declined to a point where it has with 2 exceptions always meant recession in the last 60 years. Here's the supporting graph:

But although industrial production may be something of a "first among equals" of the 4 recession indicators of production, sales, employment, and income, the fact remains none of the other 3 measures are in retreat (h/t Doug Short):

Nocie that it is only in the last two months that industrial productioin really gapped down - keep that in mind.

If we break out sales between wholesale and retail, we do see a downturn in wholesale sales, but retail is still OK (and as I pointed out Friday, real retail sales may only have gone sideways,not down, in December, and even if so, it is only one month and not nearly the downturn we saw in December a year ago.)

Further, as I pointed out Friday, manufacturing production may be going sideways, but it hasn't turned down:

In addition to manufacturing, industrial production also includes mining and utilities.  So here is mining:

This is the commodity sector, and it is absolutely horrrible, among the worst downturns in the last 50 years.

Now here is utilities:

Note these two were going sideways until recently.  How recently?  Here is a close-up on the last 5 years:

Remember what I told you about keeping in mind the last 2 months?  Well, the entire downturn in utilities has taken place in the last 2 months.

And in case you needed a refresher, the autumn months in the US were the warmest on record.  December broke even more records.  So utilities weren't exactly working at breakneck speed to churn out energy for heating.
A final way this is not like the 2001 manufacturing-led recession is that employment is doing pretty good:

There was a big downturn in employment from 2001-03 coinciding with the giant sucking sound of manufacturing jobs relocating to China.

The bottom line is, this remains a commodities recession only at this point. With an assist from climate. If January weather returns to normal, there will be a rebound.