Industrial production in the United States fell for a fifth consecutive month in April. Outside of recessions, this has been an infrequent occurrence. The red circles in the chart below highlight all instances of a fifth consecutive monthly contraction.
However, the recent five month draw down has been relatively shallow. From December to April industrial production declined by just over 1.03%. Five month changes in industrial production, since 1921, that have met or exceeded the current contraction are outlined in the chart below by red circles. Draw downs like the current one have frequently taken place during recessions, but occasionally have occurred during periods of economic expansion.
This analysis leads to an obvious question. Based on industrial production data, what are the odds that the U.S. was in recession in April? Using a logistic regression analysis, the probability that the economy is in a recession may be close to 20%.
The table below displays the odds that the U.S. was in recession by using different trailing periods of industrial production.
Based on data stretching back to 1919, and using three month percent changes, the regression analysis indicates there was a 24.1% chance the U.S. was in recession in April. Based on twelve month changes the odds that the economy was in a recession drops to 17.4%.
Each chart below depicts recession probabilities since 1921, based solely on industrial production, for the trailing periods listed in the table above.
Despite the relatively unusual occurrence of five consecutive months of contraction in industrial production, the probability of the U.S. economy being in a recession is just over 25% on a trailing five month basis.
Using a trailing twelve month period the recession odds remain in a range it has been for the past few years. On a shorter term trailing period the probability increased significantly over the past few months.
The June 15 release of industrial production for the month of May will be of great interest.