Thursday, December 15, 2022

November Industrial production: has the King of Coincident Indicators peaked?

 - by New Deal democrat

Industrial production declined -0.2% in November, and manufacturing production declined -0.6%, essentially returning both indicators to their levels of July:

I call industrial production the King of Coincident Indicators, because its peak most often coincides with the month of the onset of a recession as determined by the NBER. So the fact that total production has been close to flat for 4 months, and down -0.3% from 2 months ago is an important caution sign; especially since real retail sales, the primary component of total manufacturing and trade sales which is also relied upon by the NBER, also turned down significantly in November.

On a YoY basis, total production remains higher by 2.5% and manufacturing production up 1.4%. The below graph shows the past 50 years of this metric with both values normed to 0:

Back when the US was the world’s manufacturing powerhouse, these YoY values were recessionary. But in the past 30 years, as the US economy became more dominated by services, YoY readings like these also equated to slowdowns during expansions.

In any event, if the King of Coincident Indicators has truly peaked, then the report on personal income next week, which minus transfer payments is another important metric used by the NBER, assumes added significance.