Expected Slowdown in US Industrial Production
July 30, 2021
US Industrial Production is in an accelerating growth phase now, but will that trend continue through 2022? Catch our newest TrendsTalk episode with ITR Analyst and Speaker Taylor St. Germain to learn more.
Transcript by Rev
Hi, everyone. My name is Taylor St. Germain. I'm an analyst with ITR Economics, and thank you so much for joining me on this episode of TrendsTalk. Today the focus of my TrendsTalk will be the slowdown that we're expecting to characterize the industrial economy for the majority of 2022. Now for those of you that are subscribers to our ITR Trends Report or follow ITR Economics closely, you are very well aware of our industrial production forecast and the fact that we're expecting it to slow down as we move deeper into 2022.
As of now, we're projecting a First Quarter 2022 peak, and then for the rest of the year to display a slowing growth rate. Now we're not calling for a decline in the industrial economy. I don't want you to be confused into thinking that. It's still growth. It's just growth coming at a slower pace for the majority of the year. We have several economic indicators that are telling us that this expectation will likely come to fruition, whether it's internal indicators from ITR Economics, whether it's the ISM's Purchasing Managers Index, but I wanted to today focus on more of the behavioral side of economics. It's incredibly important as we all know.
And so what I wanted to focus on in terms of indicators today is the Confidence Index. U.S. Business Confidence Index would be the first one. The second one would be the U.S. Small Business Optimism Index.
So let's first start off with the Confidence Index. This comes from the OECD, and what we've seen developed in the data as of late is a tentative peak, I'll call it a tentative peak at this point, that has formed in April. Now that 1/12 rate of change for the month-over-month growth rate has seemed to peak in April, and we've seen a couple consecutive months of decline from that peak. Now it's important to note that this indicator gives us about a three to four-quarter lead time on a majority ranged U.S. industrial production, so that tentative peak that's forming in April coincides very well with our expectations of a First Quarter 2022 peak in the industrial economy. So businesses are still confident, but maybe that confidence is slowing down a little bit, and that's what we can take away from that indicator.
It's actually a very similar story when we look at the NFIB Small Business Optimism Index indicator, which has also reached a tentative peak in April and has been slowing down. So we have multiple indicators from different aspects of the economy, whether again we're looking at volume, we're looking at the feeling of purchasing managers, or we're looking at confidence and optimism from business owners around the country.
So from our perspective, we have an overwhelming majority of indicators that are pointing to that slowdown that again will really start shortly after the first quarter of 2022 and characterize the remainder of 2022. So it's very important as we're approaching that 2022 timeframe that we have plans to take on slowing growth and understand that the growth that you're experiencing now and late into this year and into early next year is not going to persist as we move deeper into 2022. So it's important you're tracking your leading indicators, you're keeping up to date with the leading indicators that we're following as it relates to the cyclicality of U.S. industrial production. It's important not to straight line budget as we move into 2022. That would be one of the biggest mistakes I think that we can make if we're straight-lining numbers from '21 into 2022 because the majority of 2022 will be characterized by slowing growth.
I hope you found this TrendsTalk useful. Thank you so much for joining me, and until next time, I'm Taylor St. Germain with ITR Economics.