Business Cycle Indicators as of Mid-January 2022

Industrial production comes in below consensus (-0.1% vs. Bloomberg +0.3% m/m). Here are some key indicators followed by the NBER BCDC.

Figure 1: Nonfarm payroll employment (dark blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. NBER defined recession dates, peak-to-trough, shaded gray. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (1/3/2022 release), NBER, and author’s calculations.

Manufacturing production also missed (-0.3% vs. +0.5% consensus).

Figure 2: Industrial production (red), manufacturing production (blue), manufacturing employment (green), manufacturing aggregate hours for production & nonsupervisory workers (brown), all seasonally adjusted, all in logs 2020M02=0. NBER defined recession dates, peak-to-trough, shaded gray. Source: Federal Reserve Board via FRED, BLS, NBER, and author’s calculations.

The volatile utilities component of IP fell 1.5% m/m, partly offsetting the 2% increase in mining.

Regarding manufacturing, the business equipment category decreased by 0.5%, which is sensitive to capital investment expenditures, possibly signaling a  deceleration (possible, because, we don’t know  if it’s supply or demand induced). Automotive parts production was down 1.3% m/m.

Finally, nominal retail sales (ex. food services) undershot as well, -2.3% vs. +0.2% consensus. In real terms:

Figure 3: Manufacturing and Trade Industry Sales, 2012Ch.$ (black), retail sales ex food services deflated by CPI (red), retail sales ex food services deflated by PPI for finished goods (teal), all in logs 2020M02=0. NBER defined recession dates, peak-to-trough, shaded gray. Source: Federal Reserve Board via FRED, Census, BLS, NBER, and author’s calculations.

Jason Furman observes that the decline of real sales toward trend might be seen as a signal of normalization, as spending on goods reverts to pre-pandemic rates. In terms of business cycle indicators, to the extent that manufacturing and trade industry sales are correlated with retail sales, this hints at a downward movement in the black line in Figure 1. (Since July 2020, each 1 ppt change in PPI deflated retail sales is associated with 0.5 ppt change in real manufacturing and trade industry sales, with adj.R-squared of 0.75).

These are backwards looking indicators. High frequency indicators based on weekly data (Baumeister et al. index, see this post, as well as this post) show continued growth through December.

Source: Weekly Economic Conditions Index, accessed 1/14/2022.

A similar pattern is shown in the Lewis-Mertens-Stock indicator.

On the other hand, indicators for the high-contact services sector suggest a downturn there.

Source: Torsten Slok/Apollo, communication of 1/14/2022.