Above Trend Inflation Is The Consensus

The April industrial production report was just like the retail sales report. It was worse than expected, there was a very tough comp, and the comp was revised higher. However, the comp wasn’t as tough and monthly growth was solidly positive. Specifically, monthly industrial production growth was 0.7% which missed estimates for 1.2%. However, March’s reading was revised up by 1% to 2.4%. In that sense, it was a beat unless analysts expected a large positive revision.

Manufacturing growth was 0.4% which missed estimates for 1.8% growth. The prior reading was revised up 4 tenths to 3.1%. Finally, the capacity to utilization rate rose 5 tenths to 74.9%. In February 2020, it was 76.9% which was a few points off the prior cycle peak. There is plenty of room for expansion left.

Auto production was down 4.3% because of the semiconductor shortage. Factory output increased following the winter storms. Mining production was up 0.7% and utilities were up 2.6%. As you can see from the chart below, there are now zero manufacturing sub-sectors in a recession. The manufacturing sector has heated up so much that we are looking for the cycle peak. There were numerous peaks in the last expansion. Manufacturing recessions don’t usually cause the overall economy to slump.  

Bottlenecks Are Easing

If you listen to conference calls in the industrial sector, it’s clear the supply chain is under enormous pressure. Companies are getting their goods to ports ahead of time to lower costs. Companies are pulling out all the stops to lower costs and get goods shipped on time.

As you can see from the chart below, this is still a major issue. The number of anchored container ships waiting to offload goods in LA went from zero before the pandemic to 40 in February. It’s down to the high teens, but the issues aren’t over yet. We will hear about this on Q2 conference calls. However, it should be over by Q3 which should help margins.

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