Industrial Production

By Spencer

In December industrial production fell 2.0% and manufacturing output fell 2.3% to a level almost 10% below year ago levels .

From a level of 100 at the peak industrial production has now fallen to 92.0, or roughly at the average trough level for the 10 post WW II recessions of 92.3%. Three recessions were more severe. In 1958 the peak to trough drop was to 86.6%, in 1974 it was 86.9%, and in 1981-82 it was to 90.7. Despite all of the improvements in inventory control and other factors behind the great moderation there is little doubt that by the time this recession is over it will have been among the worse post WW II recessions. If you rely on nothing else, the current level of inventories very strongly implies that manufacturing output has yet to bottom.

One of the things I do is estimate monthly manufacturing productivity growth and it is now approaching zero. As a component of the lagging indicator the conference board makes an estimate of monthly manufacturing unit labor cost. They estimated that in November the six month growth rate at annual rates for manufacturing unit labor cost was at double digit rates.
If this is accurate, the spread between falling prices as measured by the PPI and unit labor cost implies that corporate and/or S&P 500 profit margins are now falling at post WW II record rates. Together with sharply falling output and write-offs in the financial sector it clearly looks like the drop in corporate profits and/or S&P 500 earnings will set a post WW II record decline this cycle.

One difference this cycle is how small the drop in capacity utilization at the crude level has been.

This stem from the growing role of energy production in the industrial production data as output of other metals and minerals has declined in importance. In todays world the bulk of the drop in domestic energy consumption shows up in falling imports rather than falling output.

Thought I would add this chart.

Industrial production data can be found at

Manufacturing hours worked needed to calculate productivity is at:

The Conference Board data on monthly manufacturing unit labor cost is only available by subscription.