Wednesday, February 17, 2016

Industrial production: Why the US is not in a recession

 - by New Deal democrat

This morning's industrial production numbers clarify why the US economy is not in a recession.

Although the rubric of two quarters of negative GDP is common, the NBER defines a recession as a widespread downturn in production, sales, income, and employment.  This simple fact is, while our current slowdown might produce a negative GDP reading, it is simply not a widespread downturn.

Let's begin with the consumer side of the economy, and then turn to the producer side.

Employment has continued to steadily increase:

So has income:

And both personal consumption expenditures and real retail sales have also continued to increase:

So, as I said last week, the consumer is alright.

Turning to production, here are total business sales broken down by manufacturers (blue), retailers (red), and wholesalers (green):

While manufacturing and wholesale sales are down, retailers sales are not.

Now let's look at industrial production (blue in the graphs below) . Production is broken down into manufacturing (red), mining (green),  and utilities (purple): 

Although mining turned down a full year and a half ago, and utilities have suffered (in part because autumn and December east of the Mississippi remained unseasonably warm), manufacturing has continued to increase, tying its all time high in January.

There has been an intense and focused severe downturn in the sector of the economy having to do with commodity extraction and exports.  The rest of the economy has continued to improve.  That's why the US is not in a recession.