How Many Months After Industrial Production Peaks Before a Recession Hits?

December 7, 2022

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4:19 pm

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31 comments

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Economics

Industrial production data from the Fed, chart by Mish

Other than 2000 and 2020 there is not much lead time between the time industrial production peaks and recession starts.

Recession Lead Time After Industrial Production Peak

*Industrial production data from the Fed, calculation and chart Mish*

In 5 of the last 7 recessions, industrial production was primarily a coincident indicator of recessions. In 1990 IP peaked one month after recession started and in 1980 IP peaked at the start of the recession.

Twice the lead time was a month and twice it was two months.

The two main exceptions are 2001 and 2020 where IP was in a long slowdown before recession hit.

Currently, IP hit a peak in September and manufacturing in October. The chart is through October.

Most likely recession will hit without a warning from industrial production.

The current numbers by themselves do not indicate much of anything but they are one of the items the NBER will use in arrears to determine if a recession has started.

This post originated at MishTalk.Com

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vanderlyn

3 years ago

NOT far enough back in time for parallel. this is post ww2 era inflation. per economist newspaper proper analysis. covid world shut down like ww2. printing and borrowing to pay for shut down war of covid……created inflationary 1947 to around 1951 post lockdown boom. no recession. inflation and tight labor market really not horrible times. just all of us have to change from lockdown. new way of living. suburbs and auto buildout post ww2 is now work from home changing lifestyles. but tight labor.

worleyeoe

3 years ago

Who knows? With some portion of $13T in Fed / Congressional stimulus floating around out there, there’s no telling. It’s obvious that we haven’t seen anything like this since the ’70’s / early ’80’s. Volcker didn’t manage Fed policy via MMT.

Fish1

3 years ago

I’m wondering how Papa Dave’s no brainer oil and gas positions are looking? Is he out pawning his Casio watch? “Investing” is 3/4 luck and the ability to outlast irrational markets.

MPO45

3 years ago

Reply to Fish1

Dont know what PapaDave is doing but I bought 500 shares of XOM today and sold January OTM call strikes for a juicy 5.5% return in about 40 days. The time to buy oil stocks is on dips not rallies. Oil may decline during the recession next year but it will explode back up when China fully re-opens and powers up their manufacturing machine.

Roadrunner12

3 years ago

Reply to Fish1

Unfortunately Realist isnt taking it too good, he reported my post, its at the moderators. I hope it shows up. Realist/papadave/mpo45/imgreen has an amazing day trading program that he uses. Im sure you remember him saying how he trades daily making millions. Not quite sure how though when you can even get the oil price right and are 100% wrong. Remember realist touting non stop buy, buy, buy when oil was >$110. Theres no way its going under $100. Fast forward and then realist then touting theres no way its going under $80. And dont forget hes daytrading with his miraculous program where he makes millions every day.

Dont also forget realist touting property at the peak a year ago and oh yeah we cant forget crypto scam touting.

Meanwhile realist was calling me an idiot for being a gold, silver stacker.

And we must forget realists politics, whenever there is a post dumping on democrats, realists constantly says its a waste of time, make money, but does a complete 180 when its dumping on republicans.

I hope my post comes back, realist really really likes to buy high. I think his trading program must be upside down, haha, hilarious.

Ive seen this before with people using multiple aliases on bull boards. Ive had run ins with these trading wizards before, they claim to be eating steak & caviar and tell me Im an idiot eating hot dogs. Gotta go now, I gotta get the wiener before the dog gets it.

vanderlyn

3 years ago

Reply to Roadrunner12

to be on anonymous intertubes and not expect hucksters is itself sort of hucksterism or just naive. who cares. we all just do our real life thing. i take all comments and advice on internet and in real life with knowledge no one knows, including you and me and mish. it’s why it’s gambling. if you want equality and fairness, stroll through a cemetery. just ignore the huge statues of folks like alexander hamilton’s grave near wall street i pass each week strolling to university. his bank of ny, founding and investing, is still working. started circa 1780s. i’ve owned it now, 240 years. might start to short it. LOL

Salmo Trutta

3 years ago

Reply to vanderlyn

Gambling? I used to say I needed no “disclaimer”.

Roadrunner12

3 years ago

Excellent interview found at Maneco64 “The Energy Cliff Will Drive Investors Into Gold and Silver”

The Energy Cliff Will Drive Investors Into Gold and Silver. – YouTube

Video pretty much confirms what I have said previously and believe to be true, only growth in oil across the world roughly the last 10 years has been Canada’s oil sands and US shale oil. US shale oil has peaked and will now go into decline. The days of US exporting oil will be short lived.

How does the decline of oil affect the worlds future?

OUdaveguy

3 years ago

Reply to Roadrunner12

Haven’t seen a “Peak Oil” comment on the interwebs in years!

Six000mileyear

3 years ago

Connecticut’s manufacturing sector just took a HUGE hit yesterday when the Army chose the Bell-Textron helicopter over Sikorsky’s. The surrounding machine shops are going to get hit hardest because the helicopter contract would have required much of the machining be done in Connecticut.

OUdaveguy

3 years ago

Reply to Six000mileyear

Isn’t the playbook now for Bell-Textron to just do a merger with Sikorsky?

8dots

3 years ago

The industrial production index look like SPX between 2000 and 2009. The space between recessions have stretched. The next high might reach 180 in 2030.

The winners : the banks.

GruesomeHarvest

3 years ago

The problem here is how do you know that production has peaked? In the plot, there are many small downturns where no recession occurs. Thus, unless you wait a few month to see if the trend continues, it’s hard to say if it has peaked or if it’s a little bump on the road.

MPO45

3 years ago

As a reminder, I put my money where my mouth is and still holding strong XHB put options for $55 strikes for January 2024 expiry. I bought more with every “rally” in this market. I think I’m $10k in at this point on put option contracts and will buy more if the price is right. Don’t know when the recession kicks in but the panic and capitulation on XHB is slated for January 2024.

JPOW will kick the market in the nuts again next week. Let’s see how much hopium is left.

HippyDippy

3 years ago

I live in north Florida. We’re always in a depression thanks to our local overlords and whatever criminals lurk in Tallahassee. Not to mention that our sheriff’s and police law dawgs are always on the internet amazing the world with their disregard for their subjects. The recent idiocy concerning the blind guy comes from here. And that’s just the tip of it all. Clown world. All thanks to the slaves who keep demanding a master. That’s how they keep the uniparty going. They just tell the idiots that they have two choices so they don’t have to think. Both choices being selected for them. And the idiots keep falling for it! It’s so freaking hilarious! Except for all the death and destruction they cause. But, at least it’s usually just the slaves who die. Not like we have a shortage of them, so good riddance.

Kauaifb

3 years ago

No recession, “Roaring 20’s”, companies with high debt levels will be at a competitive disadvantage, blue companies with middle management running the companies from bed will also be at a disadvantage. Look at the stock price for proof.

Maximus_Minimus

3 years ago

The Bank of Canada today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

OUdaveguy

3 years ago

Reply to Maximus_Minimus

But at what point does the inflation and higher interest rates tip consumers and governments into a massive spending decrease/implosion? Inflation ravages the poorer nation-states first, (like Sri Lanka), but nobody is really immune from the evils of money printing. And with a world based on debt, the higher interest rates will eventually cause carnage across government, corporate, and household budgets.

Maximus_Minimus

3 years ago

First, you can argue what a recession is. Historically two quarters of negative growth, i.e. negative real GDP.

How much value have historic measurements in the new normal, since 2008-ish?

StukiMoi

3 years ago

Reply to Maximus_Minimus

“How much value have historic measurements in the new normal, since 2008-ish?”

Exactly as much as they had pre 2008: A cold, dead, hard zero. For real. Not hyperbole at all.

TexasTim65

3 years ago

One of the Technical sites I follow just sent out the following email today suggesting a ~20% drop in the S&P is coming. I can’t post the charts mentioned in the email on this site unfortunately (wish we could post images).

December 06, 2022: Recap of key market structure going into Q1

The bull market is very mature. It has been advancing for 14 straight years. There are a number of signs that signal a change in major structure is developing. One of the first signals that a bull market peak has occurred is the shift from deflationary assets to inflationary assets.

In Chart 1, we see the long-term performance between deflationary assets (Dow) and inflationary assets (CRB-commodities).

From 2002 to 2022, the CRB was generally outperforming the Dow. Starting in 2012 and going to the end of 2020, the Dow’s performance was dominant over the CRB. That all changed in 2021.

Beginning in early 2021, commodities (CRB) are once again outperforming the deflationary-based Dow. These key shifts from one asset group to another also occur at about the same time as the bull market makes important shifts in trends.

Chart 2, shows the benchmark S&P 500 reaching the well-established downward trend line in December and rolling over. This year-long pattern of lower lows and lower highs is expected to continue into Q1.

Chart 3 points to one of the early signs of a pending recession and market correction. A prolonged inverted yield curve.

An inverted yield curve is when short-term yields are higher than longer-term yields. If this event occurs for a few weeks (less than 6 weeks), then there is no signal for a recession. However, beyond 6 weeks, the probability greatly increases. The current inversion is now 22 weeks old.

Bottom line: There is mounting evidence that the 14-year bull market has come to a completion. The shift of performance from deflationary assets (Dow) to inflationary assets (CRB-commodities), the new downward trend in the S&P 500 (the same is occurring with the NYSE, Nasdaq, Russell 2000), and the prolonged US yield curve inversion are some of the more obvious markings of a bull market completion.

Indications of an overextended economy are the rapid rise in inflation, the drop in consumer confidence, the plunge in pending home sales, and the sharp decline in US Manufacturing index.

Models point to a downside target for the S&P 500 of 3250.

MPO45

3 years ago

Reply to TexasTim65

The call is too early although anything can happen. I expect a slow burn thru 2023 with plenty of drops and rallies. My data is showing Q4 or Q1 2023 for a bottom but guesses and predictions is what makes a market. Some think stocks are undervalued and some think they are overvalued. Still holding put options on XHB for January 2024 (not 2023). If there is a sudden plunge in Q1 of 2023 I may take profits and buy back in on rallies.

TexasTim65

3 years ago

Reply to MPO45

There isn’t a specific date as to when it will drop that low or even how soon it will start dropping in earnest. It’s just a heads up notice for all who follow the site that if you are still long stocks it’s time to have your hard stops in place or get to cash now rather than wait.

shamrock

3 years ago

Atlanta FED GDP nowcast soared from 2.8% to 3.4% yesterday. Given how accurate it has been I would say there is essentially 0 chance a recession starts in 2022.

Lisa_Hooker

3 years ago

Reply to shamrock

Sure. The Atlanta Fed is so much more dependable than the Blue Chip Consensus. /s

MarkraD

3 years ago

Reply to shamrock

Well, yeah, what with there being 3 weeks left to 2022.

Mish

3 years ago

Reply to MarkraD

actually, in terms of data, 2.5 months is about right

Lisa_Hooker

3 years ago

2.738 months. Exactly. /s

Mish

3 years ago

Reply to Lisa_Hooker

actually, in terms of data, 2.5 months is about right.

MarkraD

3 years ago

How many months when Industrial Production peaks with job openings at 7.5%, 1.7 job openings per unemployed worker, does it take?

My point is that specific contributing variables are never the same, especially not now, akin to betting on past market moves as a predictor of future without parsing the details then and now.

RonJ

3 years ago

“Most likely recession will hit without a warning from industrial production.”

Things that happen slowly, then suddenly. Months and months and months of talking about a recession and suddenly, it’s here.

Stock trader David Frost would constantly say, “it’s hard to kill a bull,” as market tops take time time to play out. Then suddenly, the market is down 20% in a matter of weeks.

The FED rate hikes take a year to have their effect on the economy, so they say. Anticipation builds and builds for cause to result in effect. Then effects happen rapidly and the FED panics once again.

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How Many Months After Industrial Production Peaks Before a Recession Hits?

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