The index of industrial production -- covering manufacturing, mining and utilities -- has declined a comparatively mild 5.8 percent since its peak reached last September. The 12-month drop is not as bad as the average postwar recession, but then this recession isn't over yet (nor are we certain when it began). The chart below compares the average decline from peak to trough in the nine postwar recessions relative to the decline posted in production over the past twelve months. Only the 1990-91 recession showed a smaller decline, when production fell 4.3 percent. The largest production decline was posted during the 1973-75 recession (-14.9 percent).

Looking at these major categories, we see some similarities and differences from the average. For instance, nondurable manufacturing production has shown a steeper drop in the past twelve months than is the norm for recessions. The current decline of 5.1 percent in nondurable manufacturing is sharper than seven of the previous nine recessions. (Worse showings: 1973-75, 1980 recessions)

Mining is looking much better than usual. In fact, mining is up 1.9 percent in the past twelve months, versus a typical recessionary decline of 7.6 percent. The only other recession in which mining posted a rise was 1969-70. The strength in mining is generally across the board (coal, oil & gas, stone & earth minerals) with the exception of metal.

In contrast, utilities have performed much worse during these past twelve months, declining 2.1 percent since last September. Typically, utilities managed to rise 1.5 percent on average in the past nine recessions. Incidentally, utilities fell during the two more recent recessions (1981-82, 1990-91) but rose in all the prior postwar recessions. Both electric and gas are sluggish.

Instead of looking at production by industry groups, we can also look at production by product groups. We are not likely to be surprised here. Consumer and business products have declined rather dramatically, almost as much as the average recession in the post war period. In contrast, construction and materials production has declined much less sharply - probably reflecting the strength in the housing sector.

Recession comparisons
The National Bureau of Economic Research (NBER) officially marks the beginning and end of recessions. They are never in any hurry because they want to be accurate. For instance, they announced the July 1990 trough on April 25, 1991, nine months after the recession began. They announced the March 1991 trough on December 22, 1992, 21 months after the recession had ended! This means that we could go a few more months before the NBER officially settles when the current downturn began.

The index of industrial production is certainly one of the key indicators that helps this organization determine economic turning points. If we were in the 1950s or 1960s, there is no question that an economy-wide downturn would have coincided with declines in industrial production. Since the United States holds a larger share of production in services rather than goods, declines in industrial production now have a smaller influence on the economy as a whole. Consequently, it is possible that the current recession won't have a start date of September 2000, even though that marks the recent peak of industrial production.

The bottom line
The Federal Reserve Board is releasing October production figures on Friday, and economists are generally predicting another sharp decline. Since we already know that production will be lackluster, investors may benefit by looking at the various industry and product groups to see which is performing better. For instance, if mining holds or rises a bit, it could signal that companies and stock prices in this industry may do well. If utilities continue to perform poorly, it could explain weakness in utility stocks. Declining interest rates, including lower mortgage rates, may allow the housing market to continue to outperform other sectors of the economy. Check out production in construction and materials. Look at the relative performance of consumer products versus business products to help decide whether you should focus your investments on consumer-oriented companies or business product firms. Opportunities exist even when economic data are in the dumps.

Evelina M. Tainer, Chief Economist, Econoday