Note: This commentary has been updated to incorporate the October 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:
The Latest Indicator Data
Today’s report on Industrial Production for October shows a 0.1% increase month-over-month, which was worse than the Investing.com consensus of 0.2%. The year-over-year change is 4.11%, down from last month’s YoY increase. Revisions were made to the previous five months.
Here is the overview from the Federal Reserve:
Industrial production edged up 0.1 percent in October, as a gain for manufacturing outweighed decreases elsewhere. As a result of upward revisions primarily in mining, the overall index is now reported to have advanced at an annual rate of 4.7 percent in the third quarter, appreciably above the gain of 3.3 percent reported initially. Hurricanes lowered the level of industrial production in both September and October, but their effects appear to be less than 0.1 percent per month. In October, manufacturing output rose 0.3 percent for its fifth consecutive monthly increase, while the indexes for mining and for utilities declined 0.3 percent and 0.5 percent, respectively. At 109.1 percent of its 2012 average, total industrial production was 4.1 percent higher in October than it was a year earlier. Capacity utilization for the industrial sector was 78.4 percent, a rate that is 1.4 percentage points below its long-run (1972–2017) 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 8 of the 17 recessions over this time frame of nearly a century.
Capacity Utilization
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.
