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Director's Cut: World Industrial Production Fell – Hard!

The world is a big place, and World Industrial Production is a large engine. Once it's in motion, it's difficult to change its direction. Unfortunately for many, that engine is distinctly on the back side of the business cycle right now. Annual World Industrial Production is growing at the slowest rate in over a year, and Production during the latest month fell a steeper-than-normal 0.2% from the prior month.

The following leading indicators are suggesting that further downside momentum exists for World Industrial Production:

1. ITR Leading Indicator

2. OECD Plus Six NME Leading Indicator

3. JP Morgan Global Manufacturing Purchasing Managers Index

4. G7 Leading Indicator

While the world is a big place, it seems to get smaller – i.e. more economically intertwined – every day. Many of the economies around the world are also on the back side of the business cycle, and further decline is likely.

The US is the largest singular economy in the world, accounting for roughly 24.3% of global GDP. However, if you combine the economies of the European Union, they account for roughly 27.6% of global GDP. Europe Industrial Production is contracting. Production during the fourth quarter of 2018 fell 1.2% below the prior year, and we anticipate further decline.

China, Japan, India, and Brazil are in Phase C, Slowing Growth, trends, and decline is projected into 2020.

US Industrial Production has not yet transitioned to Phase C, Slowing Growth, but those that follow ITR Economics know that we are expecting a transition to occur in the data during the first quarter of this year.

With the major global economies moving through the back side of the economy in 2019 and into 2020, it is important to remember that you can be profitable even in a recession. Your revenues are only one part of the equation. It isn’t just about how much cash is coming in; it is also about how much is going out. Examine what expenses you can reduce and how you can utilize this information to negotiate more favorable deals with your suppliers.

Jackie Greene
Director of Economics