The Big Four Economic Indicators: Industrial Production Rose 0.2% in July
Note: This commentary has been updated to incorporate the July data for Industrial Production.
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.
There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:
- Nonfarm Employment
- Industrial Production
- Real Retail Sales
- Real Personal Income (excluding Transfer Receipts)
The Latest Indicator Data
Today's report on Industrial Production for July shows a 0.2% increase month-over-month, which was below the Investing.com consensus of 0.3%. Industrial Production peaked in November 2014, only one point higher than its pre-recession peak in November 2007. The year-over-year change is 2.19 percent, up from last month's YoY increase.
Here is the overview from the Federal Reserve:
Industrial production rose 0.2 percent in July following an increase of 0.4 percent in June. In July, manufacturing output edged down 0.1 percent; the production of motor vehicles and parts fell substantially, but that decrease was mostly offset by a net gain of 0.2 percent for other manufacturing industries. Following a six-month string of increases beginning in September 2016, factory output was little changed, on net, between February and July. The indexes for mining and utilities in July rose 0.5 percent and 1.6 percent, respectively. At 105.5 percent of its 2012 average, total industrial production was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector was unchanged in July at 76.7 percent, a rate that is 3.2 percentage points below its long-run (1972–2016) average. [view full report]
The chart below shows the year-over-year percent change in Industrial Production since the series inception in 1919, the current level is lower than at the onset of 10 of the 17 recessions over this time frame of nearly a century.
The Fed's monthly Industrial Production estimate is accompanied by another closely watched indicator, Capacity Utilization, which is the percentage of US total production capacity being used (available resources includes manufacturing, mining, and electric and gas utilities). In addition to showing cycles of economic growth and demand, Capacity Utilization also serves as a leading indicator of inflation.
Here is a chart of the complete Capacity Utilization series, which the Fed began tracking in 1967. The linear regression assists our understanding of the long-term trend. We've highlighted the post-recession peak in November 2014.
The latest reading is off its interim peak, but has recently climbed above the regression.