Signs Say Industrial Production Has Peaked and so a Recession is Imminent

Industrial production numbers from the Fed, chart by Mish

The Fed’s Industrial Production Report for December suggests production has peaked this cycle.

Industrial production decreased 0.7 percent in December and 1.7 percent at an annual rate in the fourth quarter. In December, manufacturing output fell 1.3 percent amid widespread declines across the sector. The index for utilities jumped 3.8 percent, as cold temperatures boosted the demand for heating, while the index for mining moved down 0.9 percent. At 103.4 percent of its 2017 average, total industrial production in December was 1.6 percent above its year-earlier level. Capacity utilization dropped 0.6 percentage point in December to 78.8 percent, a rate that is 0.8 percentage point below its long-run (1972–2021) average.

A deeper dive into the details as shown in my lead chart shows weakness across the board.

Industrial Production Synopsis 

  • Industrial production peaked in October
  • Manufacturing peaked in April with a double top in September
  • Consumer durable goods peaked in April
  • Manufacturing durable goods peaked in September
  • Motor vehicles and parts peaked in October

Nowhere For Years 

Industrial Production Since 1972

Industrial production has not gone anywhere since manufacturing peaked in December of 2012. 

Q&A IP and Recessions

Q: Why is IP signaling recession?
A: Because peaks in industrial production coincide with recessions.

Recession Lead Time After Industrial Production Peak

Recession lead times in months based on Fed data.

Recession lead times vs industrial production tend to be very small, typically 1-2 month. 2001 and 2020 were notable exceptions.

December Was Another Retail Sales Disaster, Even Worse With Negative Revisions

Please factor retail sales into the recession discussion. 

December Was Another Retail Sales Disaster, Even Worse With Negative Revisions

Existing Home Sales Decline 10th Month, Down Another 7.7 Percent

Also recall that Existing Home Sales Decline 10th Month, Down Another 7.7 Percent

Existing home sales fell another 7.7 percent in November. They have declined every month this year except for January.

I highly doubt we have ever seen conditions where retail sales, industrial production, and housing starts and sales have been this miserable where the economy was not already in recession.

This post originated at MishTalk.Com.

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CoxSwane
CoxSwane
1 year ago
Gundlach also noted on his latest webcast that several reliable indicators are showing a recession is very likely 1-3 months out, if not already underway.
Hoisington also put outs its Q4 letter yesterday. Always worth reading.
Casual_Observer2020
Casual_Observer2020
1 year ago
Frankly speaking, the economy was on it’s last legs before Covid. My feeling overall is the mobile revolution has peaked and growth from all things mobile is now declining. This includes the cloud etc. The economy really is like a hot air balloon with no helium left. Employment has for sure peaked. The last dozen years or so have really only been economically viable bc of the cheap money. The Fed tried to pull the punch bowl away in 2018 and the market went haywire. Really there is nothing left to write home about and hasn’t been for years. Covid masked it all.
worleyeoe
worleyeoe
1 year ago
Back to Biden & Trump suck article
I have no problem trashing Trump’s lack
of soft skills, but I supported most of his policies, save the tax cuts. If all these tariffs had a meaningful
impact on increasing inflation, then you’d have a chart for it. I’ll even take a chart that shows a 3% impact. Oh! You don’t have one. So, stop acting like you’re making a legitimate point, because you’re not.
You’re trying to make a mountain out of a mole hill.
As I’ve said many times, I really like
your work, especially the variety of it. However, you need to extend the
conversation in articles like this by stop making grandiose pronouncements and
start offering up solutions. Like seriously. What are two better solutions to
these two major issues?
Unfair trade with China? I’m big on
tariffs. What are your two better solutions?

Russia’s war with Ukraine? I’m big on
sanctions. Again, give us solutions, because everyone knows the war is pushing up inflation. That’s the obvious statement to make.

Avery
Avery
1 year ago
Ardern, Kerry and AOC in the Kentucky Derby: win, place, show.
Siliconguy
Siliconguy
1 year ago
Reply to  Avery
Ardern just tripped out of the gate. Out of the race, and the PM job.
Six000mileyear
Six000mileyear
1 year ago
Maybe Microsoft’s announcement of laying off 10000 employees will finally get a recession declared.
8dots
8dots
1 year ago
Tomorrow, Jan 19, US gov prepare for BK. The Dow might test the downturn line and popup, until US face the cliff ==> unless Chuckie Buckle
under pressure, because he doesn’t care about AOC.
Tony Bennett
Tony Bennett
1 year ago
“I highly doubt we have ever seen conditions where retail sales, industrial production, and housing starts and sales have been this miserable where the economy was not already in recession.”
It won’t be different THIS time … no matter how much bullz protest.
vanderlyn
vanderlyn
1 year ago
Reply to  Tony Bennett
as long as this recession has the illusive deflationary pricing of food, clothing, shelter, and hookers and blow, i’m good. the last 20 years of raging inflation has made my benjamins worth half their purchasing power of aforementioned goods and services…… as a long time trader, i’ve always enjoyed higher rates and slower earnings growth. i’m still convinced the stories folks tell about why stock prices change is pure rubbish and most don’t even know they are fooling themselves. there is only one reason prices move. more buyers than sellers and vice versa.
Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  vanderlyn
More buyers – with much money in their pockets – yes.
One-armed Economist
One-armed Economist
1 year ago
“Retail Sales” is becoming “Retail Fails”.
Mish
Mish
1 year ago
At Bryce Canyon NP
Going back out in the howling wind and snow. Was up at sunrise with 15 degree temp and 25 MPH winds.
That’s why my reports were delayed this AM.
Got some good images trudging around in drifts well above my knees.
Maximus_Minimus
Maximus_Minimus
1 year ago
Reply to  Mish
The real bonus; there are no amateurs around.
Matt3
Matt3
1 year ago
Reply to  Mish
Glad to hear you’re taking your own advise and investing in enjoyment.
vanderlyn
vanderlyn
1 year ago
Reply to  Mish
sounds like you are acting in a one man recreation of the great “gulag archipelago”. i take it you were not a captain in the soviet army, in your past.

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