The Fed’s Industrial Production Report is a Disaster, Cyclical Data Signals Recession

Please consider the Fed’s Industrial Production and Capacity Utilization Report for November.

Industrial production declined 0.2 percent in November. Decreases of 0.6 percent for manufacturing and 0.7 percent for mining were partly offset by a rebound of 3.6 percent for utilities following three months of declines. At 104.5 percent of its 2017 average, total industrial production in November was 2.5 percent above its year-earlier reading. Capacity utilization moved down 0.2 percentage point in November to 79.7 percent, a rate that is 0.1 percentage point above its long-run (1972–2021) average.

I prefer my breakdowns over the Fed’s because utilities are too influenced by weather changes and cyclicals are what really matters. 

Clean Sweep for Cyclicals 

• Manufacturing Durable Goods: -3.79 Percent
• Motor Vehicles and Parts: -2.84 Percent
• Consumer Durable Goods: -2.12 Percent
• Manufacturing: -0.61

Aircraft and parts rose 1.85 percent but aircraft lead times are huge. That’s not a cyclical component of GDP.

Craig Fuller Chimes In

Fuller is CEO of Freight Waves and American Shipper.

Cyclical Components of GDP, the Most Important Chart in Macro

To understand the importance of cyclicals, please see my July 12 post Cyclical Components of GDP, the Most Important Chart in Macro.

Cyclicals including housing and durable goods only constitute ten to fifteen percent of GDP, but the swings account for variations between growth and recession according to Eric Basmajian at EPB Macro.

A Big Housing Bust is the Key to Understanding This Recession 

Also recall my July 14 post A Big Housing Bust is the Key to Understanding This Recession 

Every recession since 1952 had significant declines in cyclicals defined as durable goods and residential construction. 

Existing Home Sales Decline 9th Month, Down Another 5.9 Percent

Please note Existing Home Sales Decline 9th Month, Down Another 5.9 Percent

Existing home sales fell another 5.9 percent in October. They have declined every month this year except for January.

Housing is one of the key drivers of durable goods. Think appliances, windows, cabinets, floors, light fixtures, etc.. 

Auto sales are also cyclical. Note that Motor Vehicles and Parts production fell 2.84 percent in November. 

The Fed Projects Interest Rates Higher for Longer at Least Through 2023

Yesterday, I commented The Fed Projects Interest Rates Higher for Longer at Least Through 2023

Note the huge change in GDP forecast from September.

Range Key Points

• The projected GDP range for 2023 is -0.5 to 1.0 percent, down from -0.3 to 1.9 percent.
• The projected interest rate range for 2023 is 4.9 to 5.6%, up from 3.9 to 4.9 percent in September.

Across the board this is a decidedly weaker economic forecast and a much more hawkish interest rate forecast.

Q: Did the Fed have advance data? 
A: Of course they did. They produce the Industrial Production report.

Retail Sales: With Food and Shelter Soaring, Who Can Afford Anything Else?

Earlier today I commented Retail Sales: With Food and Shelter Soaring, Who Can Afford Anything Else?

Month-Over-Month Advances and Declines

• Food Service: +0.9 percent
• Food Stores: +0.8 percent
• Gas Stations: -0.1 Percent
• General Merchandise: -0.1 Percent
• Excluding Motor Vehicles and Gas: -0.2 Percent
• Excluding Motor Vehicles: -0.2 Percent
• Nonstore (Think Amazon): -0.9 Percent
• Motor Vehicles: -2.3 Percent
• Department Stores: -2.9 Percent

Food and Food services are the only areas where consumers increased spending in November.

Don’t Expect Big Declines in Rent 

Also on the inflation front, please see Ignore the Pundits, Don’t Expect Big Declines in the Price of Rent

Janet Yellen, President Biden, and all the other economic cheerleaders aside, please note declining sales and declining production. 

Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession

On August 19, I commented Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession

And that’s precisely what the Fed’s revised forecast now says. 

Recession?

Call it a recession, or don’t call it a recession. Either way it will not be good for corporate earnings. 

If you thought the stock bottom was in, you might wish to reconsider. 

This post originated at MishTalk.Com.

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