What Happens to IG Credit Spread (OAS) When Industrial Production Declines?
What happens when industrial production declines for multiple months? Manufacturing recession signals, cyclical sector impact, and GDP implications.
How IG Credit Spread (OAS) Responds
Scenario Background
Industrial production measures real output from manufacturing, mining, and utilities. It is one of the four coincident indicators used by the NBER to date recessions (alongside employment, income, and sales). Three consecutive months of decline typically signals a manufacturing recession, which often coincides with or precedes broader economic contraction.
Read full scenario analysis →Historical Context
Industrial production has declined sharply during every major recession: 2008-2009 (-17% peak-to-trough), 2020 (-16% in two months), 2001 (-8%). The 2015-2016 manufacturing recession (-5% without NBER recession) and 2019 mini-slump (-2%) showed that manufacturing can contract without broader recession. Post-COVID recovery brought production above pre-pandemic highs by 2022, with mixed performance since amid rate stress.
What to Watch For
- •Capacity utilization below 76%
- •ISM Manufacturing below 45
- •Manufacturing employment YoY turning negative
- •Industrial production YoY negative for 2+ months
- •Chicago Fed National Activity Index below -0.7
Other Assets When Industrial Production Declines
Other Scenarios Affecting IG Credit Spread (OAS)
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