Tuesday, October 2, 2012

Now, about that impending recession...

A few days back I looked at Capacity Utilization and noticed a new peak:

Graph #1: Capacity Utilization Reaches a Peak

Utilization could have gone up another ten percentage points. It would have been unusual, but it wouldn't have set a record. But it didn't even reach 80%, and frankly, the new peak is about where you might expect it to be, based on the trend of peaks.

The new peak means things have stopped getting better.

Later, I ran across Russ K’s Guide to Economic Indicators at the iShares Blog. The infographic shows "overrated" economic indicators (GDP, the Consumer Confidence Index, Durable Goods Orders) and "underrated" indicators (the Chicago Fed National Activity Index, the Purchasing Managers Index).

The Chicago Fed National Activity Index: Russ K says "A reading below zero means the economy is growing slower than its potential". FRED shows the last five observations all below zero.

Graph #2: "A reading below zero means the economy is growing slower than its potential"

The Purchasing Managers Index: Russ K says "A reading below fifty means contraction." At FRED, the most recent reading is 49.6, and on a downward path.

Graph #3: "A reading below fifty means contraction."

Looks like three of a kind to me.


Clonal said...


Capacity Utilization does not give you the real picture when the industrial capacity is declining. Look at USAPROINDMISMEI/CPIAUCSL

US Industrial Production series I believe is a index of the dollar amount of total industrial production. Hence I divide by CPI

From this I gather that US Industrial production peaked just before the OPEC oil embargo and declined with each subsequent oil crisis.

Joshua Wojnilower said...

Trouble is definitely ahead. As an Obama victory becomes more certain, i think the "fiscal cliff" issues becomes more worrisome. It seems a near certainty the budget deficit will shrink next year and my best guess is a target around 5% of GDP. At that level, I have a hard time seeing private demand pick up the slack to avoid growth falling towards zero.

If Europe and/or China struggles, or US stock markets get spooked, it could easily be enough to push growth into negative territory.

Clonal said...

Here is a link to the graph I am referring to above. Instead of using CPIAUCSL, I used USACPIBLS

The graph

Clonal said...

Same graph as above, but now adjusted for population growth

Per Capita Graph

The Arthurian said...

Clonal: "Capacity Utilization does not give you the real picture when the industrial capacity is declining."

Oh, good observation. I never thought of that.

Your graphs are interesting... Your reason for dividing by CPI seems correct... But the results make me hesitate. The big downtrend in both graphs occurs during the Great Inflation. That's not surprising, but it seems to have more to do with inflation than with industrial production. (Based on impressions, not facts.)

I looked around a little for a definition of USAPROINDMISMEI or info about it that might indicate whether removing the inflation from the series is appropriate or not. Didn't find anything.

The industrial production series divided by NGDP gives a result similar to your graphs, with a great decline during the great inflation.

Divided by RGDP it gives a more "believable" gentle downtrend.

Any chance the US Industrial Production series is not an index of nominal dollar amounts?