Prof. Hamilton on Industrial Production

James Hamilton has an interesting post on industrial production.

[T]he Federal Reserve Board’s index of industrial production fell one-half percent in January. That by itself is not that unusual. What makes it noteworthy is that this Fed index has been languishing for a while, and is now below its value of six months ago. That, too, can sometimes be benign. We saw a 6-month low in September 2005 after Hurricane Katrina, and in the anemic recovery of 2003. But a 6-month-decline in the index is something that is often associated with the early stages of an economic recession.

As I’ve also been saying on these earlier occasions, if the housing downturn gets no worse, that by itself should not be enough to cause a recession. Detroit’s woes are also not enough by themselves to cause a recession. But what about the two together?

Here’s what I think: sad.gif

I have to agree.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Edgardo says:

    I’m sure you can find some other series that show the same behavior as housing and industrial productions. But what about other productions that may still be increasing. Prof. Hamilton’s statistical analysis just reflects the poverty of macroeconomics.

  2. Steve Verdon says:

    Let me…who am I going to put more weight on…the guy who is a tenured professor, wrote one of the top books on time series analysis, and has a good track record vs. an anonymous commenter. Hmmm…tough one.

  3. Edgardo says:

    Steve, you should distinguish between statistical and economic analyses. Prof. Hamilton is well known because of his expertise in statistical analysis, in particular time-series analysis. But his post is about macroeconomics. Today I’m retired living very well with the money I earned by providing advice on economic trends. One of the best decision of my career was to leave time-series analysis out of my economic analysis (I did it in the early 1970s).

  4. Steve,

    You seem to have a blind spot in regards to the economy. The GDP being higher in 2006 than 2005, no post despite several posts earlier saying the lower GDP is potentially the harbinger of a recession.

    You did a similar thing on real estate until that data started to turn around.

    Since the GDP doesn’t seem to bolstering your predictions of a possible recession, you now look for other data to support the view.

    To paraphrase you, who am I going to believe, someone who continues to see economic storm clouds coming, but then ignores the data when the sun breaks through. I’m not saying that a recession can’t happen. I’m just saying that you seemed to be a stopped clock in predicting it.

  5. Steve Verdon says:


    I think my posts have been fairly objective. That you don’t like the conclusion does not mean I’m biased.

    For example, there is this post. I noted the decline in the mortgage interest rate was good for real estate, but the supply of new houses meant it could be bad for the home building industry. Seems pretty straight forward to me.

    Granted, I did mention the concern about sub-prime loans and what could happen if lots of those start going bad, but I guess you just keep seeing that glass as not only half-full, but completely full and over-flowing? (I’m being sarcastic.)

    There is a similar post here.

    This post noted the strength in consumer spending and income growth.

    In short, that I try to take into account different views on the economy vs. looking at only the people who see great times ahead, doesn’t verify your claim.


    Looks like you should also brush up on your probability theory. I took Hamilton’s post to indicate that he was more pessimistic, not that a recession is imminent.