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By New_Deal_democrat April 15, 2016 1:05 pm
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Industrial procuction: recession deepens; Empire State survey: it is ending
Back in January, in my forecast for the first half of 2016, I wrote:
 
"The third quarter of 2015 featured no positive readings [ whatsoever.  On top of that, I have recently suggested that the trade weighted US$ should be included as a short leading indicator, with a weight given of +/- .1 for each +/-1% change in the value of the dollar.  Since the US$ has been slowly trending higher over the last 6 months, this suggests to me that this winter we can expect a definite rough patch, that probably has already started.   With the readings for the final 3 months of 2015 firmly positive so far, by late spring we should be seeing a rebound." 
 
 
This morning's awful industrial production report certainly put an exclamation point on the winter rough patch, while the Empire State survey added another bit of evidence for a rebound later this spring.
 
First, the bad part.  Not only is industrial production as a whole (blue in the graph below) now -3.1% below its November 2014 peak, but manufacturing (red), which so far had resisted the downturn, also participated in the bad news:
 
 
If this were the manufacturing-based US economy of 100 or 50 or even 30 years ago, this would undoubtedly have been couple with a downturn in employment as well as sales.  While we are skating on some thin ice, I don't see employment turning negative in the immediate future, and so I don't see this as an actual recession.
 
But if the industrial recession isn't so shallow anymore, the Empire State survey turned positive, and the leading portion - new orders - improved to its second strongly positive month in a row.  Here's the NY Fed's money quote:
 
"Business activity expanded for New York manufacturing firms for the first time in over a year, according to the April 2016 survey. After remaining in negative territory for seven months, the general business conditions index rose to a reading slightly above zero last month, and climbed nine more points to reach 9.6 in April....  After a steep gain last month, the new orders index edged up two points to 11.1, pointing to an increase in orders."
 
And here is the accompanying graph:
 
 
Note that this month's rebound is the same thing we saw at the *end* of the 2001 and 2009 recessions, not at their beginning.
 
So while the nowcast is unequivocally negative, and a negative print for Q1 GDP looks increasingly likely, the evidence continues to accumulate that the forecast is for a recovery from this bottom.
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