Note from dshort: This commentary has been revised to include today’s release of Industrial Production for February.
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:
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The Latest Indicator Data
Today’s release of the Fed’s Industrial Production report showed a 0.6 percent increase in February, handily beating the Investing.com forecast for a 0.1 percent gain. The improvement was further enhanced by the upward revision of previous month’s headline number from -0.3 percent to -0.2 percent. Here is the report introduction:
Industrial production increased 0.6 percent in February after having declined 0.2 percent in January. In February, manufacturing output rose 0.8 percent and nearly reversed its decline of 0.9 percent in January, which resulted, in part, from extreme weather. The gain in factory production in February was the largest since last August. The output of utilities edged down 0.2 percent following a jump of 3.8 percent in January, and the production at mines moved up 0.3 percent. At 101.6 percent of its 2007 average, total industrial production in February was 2.8 percent above its level of a year earlier. The capacity utilization rate for total industry increased in February to 78.8 percent, a rate that is 1.3 percentage points below its long-run (1972–2013) average [link].
The chart and table below illustrate the performance of the Big Four and a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. The latest data point is the first for the 56th month.
Current Assessment and Outlook
The overall picture of the US economy had been one of a ploddingly slow recovery from the Great Recession, and the data for December and January months have shown contraction. The general explanation in the popular economic press is that severe winter weather has been responsible for the bad data, and that we shouldn’t read the slippage as the beginnings of a business cycle decline. As we can see in the illustration of the average of the Big Four since its 2007 all-time high, the rate of post-trough growth had been slower since February of 2012, although the 2012 end-of-year tax-strategy blip has obscured the trend slope over the past two years. The decline for two consecutive months is a phenomenon rarely seen outside proximity to a recession. If indeed unusually severe weather has been the dominant factor in the two-month contraction, then we should see a rebound as winter abates, and today’s IP data is certainly encouraging. Note that the most recent data point is the average of the February employment and Industrial Production together with the January data for the other two, hence the question mark.
