As of November 2014, the Industrial Production Index* has been in a declining trend.
The beginning of the rising trend was established in June 2009. When looked at from the percentage change over the previous year, there has been been only six out of 17 times when the Industrial Production Index had a negative declining trend AND a recession was not called by the National Bureau of Economic Research (NBER).
Those periods of negative Industrial Production Index change and the number of months before a recession was later indicated are as follows:
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1934: 36 months
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1952: 16 months
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1956: 15 months
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1967: 30 months
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1985: 65 months
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2003: 58 months
The average number of months before a recession was called in these six periods was 36 months while the shortest and longest periods are 15 and 65 months, respectively. So far, we’re ten months into the current trend of going positive after having been negative but without a recession call. That means that the possible recession dates could be the following (unfortunately, the NBER calls recession long after the fact, sometimes up to 18 months afterwards.):
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shortest: February 2018
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mean: May 2019
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average: November 2019
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longest: April 2022
We’d be encouraged if the percentage change above the previous year were able to increase above successive prior peaks, as highlighted in the chart below:
As each peak is exceeded, we’d expect that the prospects for a recession will be pushed out longer in time (though not necessarily a good thing for the economy, it gives time to prepare for the next recession).
On the whole, we expect that the trend is in fact our friend and therefore believe that the February 2018 date would be a reasonable expected date for a recession, until proven otherwise.
*Notes:
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Industrial Production Index data is subject to constant revision
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data obtained from the St. Louis Federal Reserve Bank at https://fred.stlouisfed.org/series/INDPRO#0