On Tuesday, April 15, the Federal Reserve released the industrial production (IP) index for March. You have to go to the very far right data point in the FRED graph to see it, but industrial activity plunged in March because of the economic effects stemming from social-distancing orders in response to the COVID-19 pandemic. Millions of businesses have closed or been disrupted, and mass layoffs have occurred. But the March IP index of 103.66 is still far higher than the level registered during the depth of the recession and financial crisis, which was 87.07 in June 2009.

The IP index is one of the nation’s longest continuously produced economic indicators, starting in January 1919. It measures production (real output) of manufacturers, mining (e.g., oil and natural gas), and electric and gas utilities and steadily increases over time; but it is highly sensitive to the state of the economy and falls during recessions, generally proportionate to the depth and duration of the recession. The 2007-2009 recession and financial crisis is a prime example.

FRED can help us compare this recent decline in IP against the entire history of the series. And the next graph shows one way to do this: month-to-month percentage changes. Measured from its February level, industrial activity fell 5.4% in March. This percentage decline is the largest in a long time, since January 1946 (-5.6%), when U.S. factories transitioned from producing primarily wartime goods to producing civilian goods for a peacetime economy. And the largest percentage decline in the series was -10.4%, in August 1945.

In fact, as this graph shows, the retooling of the U.S. economy in 1945 produced larger monthly percentage declines in IP than those during the Great Depression and the deep 1937-38 recession. So, March’s COVID-19-driven plunge in activity, while historically large, falls far short of previous declines in activity. End of story? Not quite.

Another way to gauge the historical magnitude of the March decline in IP is to benchmark it against the historical standard deviation of monthly percent changes. The standard deviation is a statistical measure of changes, or dispersion, relative to the mean (average) of the series. Most of the time, monthly percentage changes are within plus or minus one standard deviation. At times, though, large changes are well outside the bounds of one standard deviation. The larger the percentage change outside the series’ standard deviation, the larger its historical significance.

Now, the second graph also shows that the month-to-month percentage changes have become smaller over time. For example, compare the period before and after 1947—effectively, the transition to a post-WWII economy and the post-WWII economy itself. We can see that volatility—the swings between peaks and troughs—was much larger in the earlier period than in the later period. But to verify this, we’ll need to look at some statistics.

The table below shows the largest percentage declines in IP and their respective sample standard deviation over two intervals: February 1919 to December 1946 and January 1947 to March 2020. The standard deviation of monthly percent changes in IP was 3.29% in the first period and 0.96% in the second period. Hence, the standard deviation in the first period was three times as large as the second period. The table’s right-most column shows the ratio of the two statistics. By this metric, the March 2020 decline in industrial production was the biggest decline on record relative to its standard deviation.

Thus, in this sense, the March decline in IP was one for the ages.

Statistics on Monthly Percentage Changes in IP

How these graphs were created: For the first graph, search for “Industrial Production” and it should be your first choice. For the second graph, start with the first and use the “Edit Graph” panel to change units to “Percent Change.”

Suggested by Kevin Kliesen.

In 1922, the Federal Reserve Board began offering its industrial production index, with data starting in January 1919—which means we now have 100 years of data!

This series has been extremely useful in helping us gauge the state of the economy: At first, industrial production was basically the only data series available before the computation of GDP; and the data are published more frequently and quickly than GDP data. The disadvantage is that industrial production doesn’t encompass the entire U.S. economy. In fact, it has encompassed less and less as the economy has matured into primarily a service economy.

For more about the history of the industrial production index, see the Federal Reserve Board press release and the Federal Release Bulletin on FRASER, which contains the first set of data.

How this graph was created: Search for “industrial production” or click on “industrial production” on the FRED homepage.

Suggested by Christian Zimmermann.