Industrial Production Growth Is Below Average, But Certainly Doesn't Indicate Recession

The Federal Reserve released its report today on Industrial Production, which was flat in December versus expectations for a slight decline. The chart above (click to enlarge) shows the annual growth rate in monthly industrial production from the same month in the previous year. The annual growth from December 2006 to December 2007 was 1.58%, which was higher than growth in June (1.47%), August (1.41%) and October (1.52%).

The growth rate for industrial production averaged just below 2% in 2007, which is below the long-run average growth rate of 2.91%. Despite industrial production growth being below-average last year, there might be a mild slowdown, but there is still no evidence yet in this important recession-indicating variable that a recession has started. Unless and until we start seeing sharp declines in industrial production growth like during the last two recessions (see shaded areas above) in 1990-1991 and 2001, there won't be a recession.

Bottom Line: Based on industrial production, there is no evidence yet that a recession started in late 2007.