Consider the following data points, beginning with industrial production:
Total industrial production started to decrease in 4Q18 and has continued to weaken since (left chart). The Y/Y percentage change (right chart) is now approaching a contraction.
Industrial production weakness isn’t confined to one sector, as shown in this table from the latest report from the Federal Reserve:
I’ve drawn a red box around any data that is negative. Total industrial production (top row) has dropped in 3 of the last 6 months. The middle section divides the data into major market groups; there’s a fair amount of red with some sectors (non-industrial supplies and materials) spending a majority of the last 6 months declining. The bottom sector shows major industry groups: manufacturing and mining have declined for most of the last 6 months.
As a result, business earnings are lower:
Total earnings (left chart) declined in 4Q18 and 1Q19. The Y/Y pace (right chart) is now contracting.
This has led to weaker data in several employment metrics.
Average weekly hours of manufacturing employees have been dropping for the last year. This is a leading economic statistics; employers cut hours first because it allows them to keep employees.
We’re also seeing weakness in total establishment job growth. Above are the 3, 6, and 12-month moving averages of total monthly gains in establishment jobs. The 3-month MA (in blue) is near its lowest level in the last 5 years. It has also dropped pretty sharply over the last few months. But also note the similarly steep decline in the 6-month data (in blue). We haven’t seen this number drop this sharply for about five years. This could indicate an increasing weakness in the jobs market.
The financial markets have taken note.
The S&P 500 (left chart) has started another correction and the bond market (right chart) has formally inverted, which has presaged most post-WWII recessions.
All of these indicators are key indicators that are either long-leading, leading or coincidental. Combined, they paint a picture of a business sector that is really starting to hurt.