by a New Deal Democrat

Industrial production was unchanged for the month of February, while industrial production rose by +0.1%. But the bad news is that both have been revised lower for the past 5 months as shown in the two charts below:

As a result, industrial production (blue below) is now -1.8% below its September peak, while manufacturing output (red) is -2.0% below its peak since last April:

With the exception of 1966, prior to 1990 such declines were always recessionary. Since then, because manufacturing has shrunk so much as a percentage of the overall economy, both 2016 and 2019 saw larger declines without a recession. However, it is one of the 4 main matching indicators that the NBER relies on to determine if the economy is in recession.

Industrial production is also the missing component that I needed to make the first, preliminary estimate of actual manufacturing and trade sales for February.

As a reminder, we won’t even get the “official” measure for January until personal income and spending deflators are taken into account on the 31st. But we already have real retail sales for February, so what’s missing is manufacturing and wholesale sales for that month, minus the deflator. Industrial production fills in the manufacturing component, except that we do not know the relative change in inventories to sales for that month.

Without further ado, here’s how the average of Industrial Production + Real Retail Sales looks over the last 30 years compared to Real Manufacturing and Commercial Sales:

Both the trend and the typical monthly change are relatively close.

Here is the percentage change for the last 22 months:

This method is not as accurate as the second estimate I discussed a few days ago, but it gives us the basic dynamics. Like the second estimate, it forecast a sharp increase for January (+1.5% vs. +0.8% from the second estimate), followed by a -0.4% decline in February. Like the second estimate, this shows a new record for January.

As I wrote the other day, we will see how this forecast plays out on the 31st for January and at the end of April for February.

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