If top level sales are not to ever become what economists projected, as retail sales left little doubt in December, then what is left is to no longer hold the line as best as possible on resources and inputs. With inventory already massive, production must be brought down to equalize sales at each level plus already accumulated(ing) inventory. With the Empire State Fed regional manufacturing survey crashing in December, it was a clear indication that the next phase of the adjustment may have already begun.

In November, US industrial production turned negative for the first time in the “cycle”; ominously being reported by the Federal Reserve on the same day that the central bank’s policymaking body attempted to suggest an opposite economic condition. At -1.2% (revised now to -1.3%), it left little doubt as to the overall economic implication; only three times in the 136 months (not counting Nov. 2015) going back to 1950 had IP been lower than -1% without immediate proximity to recession (and all three of those months were back in the 1950’s). December’s IP estimate leaves even less doubt, figured at -1.8% currently. Only 114 times (not counting Dec. 2015) has IP been less than -1.7% and every single one of those months is associated with full economic recession. There just aren’t any false positives – which is one reason the NBER looks to IP in dating cycle peaks.

It isn’t just raw IP, either, that is concerning. Corroborating the drastic implications has been both the speed and scale in the relapse in capacity utilization. Measuring idle resources, essentially, the reduction in utilization is a hugely important measure of growing inefficiencywhich can only lead to a break in paradigm as I described above. The depth achieved already through 2015 is simply alarming, as capacity utilization in December brings US industry all the way back to November 2011.

Revisions in 2012 and 2013 obscure, somewhat, just how much of a decline has been witnessed in the past twelve or thirteen months. The prior estimates for capacity utilization shown above are what a recovery trajectory should look like, so by comparison the dropoff in 2015 away from the traditional recovery track is more like a classic manufacturing cycle being completed.