Mike Mandel is hard on the press, and implicitly me, for suggesting that manufacturing is doing well.

“Humming”? There is no sense in which U.S. factories are “humming”, unless you consider being buried underground the same as being aboveground. Industrial production of manufacturing, ex high-tech, is still 12% below its 2007 level.  (see chart below). Total manufacturing is about 9% below its 2007 level.

This is the difference between thinking in levels and thinking rates. As I noted before business folks have a natural tendency to think in rates, those more concerned with labor market, levels.

Here is industrial production in manufacturing in levels

FRED Graph

Here is the same data in rates

FRED Graph

Looking at the rate of change you see stronger growth that you have in the past ten years. Indeed, lets go all the way back

FRED Graph

This is late 90s level growth.


Now how you look at this actually has interesting consequences for your world view.

In my mind sharp drops in Industrial production is the biggest sign that something has gone wrong in the economy. Its also a sign that recessions really are different.

That is to say, its not as if some times are good, sometimes are bad and sometimes are really bad. We just label the really bad times recessions.

Looking at the Industrial Production data it really looks like regime changes.

FRED Graph

There are periods were with bumps growth proceeds at a more or less constant rate and the boom it turns around and goes down, then it starts growing again at a constant rate.

Also, its just hard to make sense of the story that letting manufacturing capacity simply go dark is consistent with smoothly functioning markets. People, maybe you can tell a story. I don’t find them compelling but there is a story – people would rather not work and when there is not good work to be done they don’t.

However, machines. This story is much harder to tell. It seems like the last thing you would want to do is shut the machines down. Move people out of marginal work like baggers at grocery stories or something. But, why is it that the machines shut down.

That story is much harder to tell. There have to be frictions somewhere, markets failing to clear.