The Big Four Economic Indicators: Industrial Production Up in February

Note: This commentary has been updated to incorporate the February data for Industrial Production.


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:

  • Nonfarm Employment
  • Industrial Production
  • Real Retail Sales
  • Real Personal Income (excluding Transfer Receipts)

The Latest Indicator Data

Today's report on Industrial Production for February shows a 0.55% increase month-over-month, which was better than the Investing.com consensus of 0.4%. The year-over-year change is 0.04%, up from last month's YoY decrease.

Here is the overview from the Federal Reserve:

Industrial production rose 0.6 percent in February after falling 0.5 percent in January. Manufacturing output edged up 0.1 percent in February; excluding a large gain for motor vehicles and parts and a large drop for civilian aircraft, factory output was unchanged. The index for mining declined 1.5 percent, but the index for utilities jumped 7.1 percent, as temperatures returned to more typical levels following an unseasonably warm January. At 109.6 percent of its 2012 average, the level of total industrial production in February was unchanged from a year earlier. Capacity utilization for the industrial sector increased 0.4 percentage point in February to 77.0 percent, a rate that is 2.8 percentage points below its long-run (1972–2019) average. [view full report]

The chart below shows the year-over-year percent change in Industrial Production since the series inception in 1919, the current level is lower than at the onset of 15 of the 17 recessions over this time frame of nearly a century.

Capacity Utilization

The Fed's monthly Industrial Production estimate is accompanied by another closely watched indicator, Capacity Utilization, which is the percentage of US total production capacity being used (available resources includes manufacturing, mining, and electric and gas utilities). In addition to showing cycles of economic growth and demand, Capacity Utilization also serves as a leading indicator of inflation.

Here is a chart of the complete Capacity Utilization series, which the Fed began tracking in 1967. The linear regression assists our understanding of the long-term trend. We've highlighted the post-recession peak in November 2018.

Capacity Utilization

The latest reading is below its interim peak and climbed above the regression in mid-2017.