Economic Papers- The Study of Contractions of Industrial Production in The United States from 1923-2018

Study of Contractions of Industrial Production in the United States from 1923 to 2018

GEORGE GILMORE MARTIN, J.D., B.A.                            June 20, 2018

The purpose of this paper is to:

1)       establish reasonable methods for quantifying contractions of industrial production;

2)       apply these methods for quantifying past declines of industrial production in the United States of America from 1923 through March, 2018;

3)       establish reasonable methods for categorizing the magnitude of the declines; and

4)       simplify the understanding of this phenomenon.

For the purposes of this paper, a "contraction" of industrial production is defined as a significant period of decline from a monthly peak in the Federal Reserve Index of Industrial Production until the monthly index surpasses the prior peak. Important criteria in contractions of industrial production are:

1)       the maximum percentage of decline from the peak month to the lowest month following the peak

2)       the total number of months of decline until the prior peak of industrial production is surpassed; and

3)       the sum total of all months percentage of decline from the peak until the peak is subsequently surpassed.

For example, the 8/1929 to 11/1936 contraction reached a maximum decline of -53.559% in 8/1932 from the peak month of 7/1929. It took a total of 88 months from the beginning of the decline until 12/1936 when the 7/1929 peak was exceeded. The sum total of all combined monthly percentage declines is -2537.623%.

The old adage that "a picture is worth a thousand words" is applied as "Martin's Razor" to simplify the tremendous complexity concerning understanding contractions of industrial production. What follows is a graph of industrial production in the United States of America prepared by the Board of Governors of the Federal Reserve System (US).