Economic data released on Wednesday came in above expectations, including the industrial production report for January. Analysts at Wells Fargo, the solid outturn for industrial production was largely due to strength in the key manufacturing sector, though mining helped. They expected a short-term air pocket before production turns sharply higher later this year.
Key Quotes:
“Industrial production continued to recover at a heady pace to start the year. Total production rose 0.9%, which was ahead of expectations. Utilities output served as a slight drag on the headline last month, down 1.2% after leaping in December. Yet manufacturing, which accounts for about 75% of industrial production, posted another solid gain (+1.0%), as production continues to catch up with goods spending that has been above its pre-COVID level for months now.”
“Even with January’s gain, manufacturing production remains 1% below its level last February. That suggests there is still some catch up in store considering real consumer goods spending as of December was up 5.3% since COVID and real business equipment spending has also made a full recovery (+3.4% since Q4:2019).”
“The industrial sector’s recovery is likely to hit pause next month, however. While manufacturers are likely dealing with less absenteeism as COVID cases decline, chip shortages and brutal winter weather across much of the country is set to weigh on production. We expect IP to hit a soft patch the next month or two, but production should remain strong this year as output comes back in line with demand.”
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