Industrials Soar Despite Weak Industrial Production & Philly Fed Index

Industrials - Weak January Industrial Production

The two most important hard data reports of the past few weeks were the December retail sales report and the January industrial production report. They were both bad. 

A dovish Fed can’t stop stocks from falling in my opinion because the economy is still weak and earnings growth is still very low. I’m only saying this because stocks are overbought. There’s something in between a bear market and one of the strongest snapback rallies ever.

As you can see from the chart below, monthly industrial production fell 0.6% which missed estimates for 0.1% growth. It was below the lowest estimate for -0.3% growth. 

The December reading was revised from 0.3% growth to 0.1%. Keep in mind, it’s foolish to say industrial production is falling because it’s still up 3.8% year over year. Growth recently peaked at 5.7% in September. Industrial production bottomed at -4% growth in December 2015. 

Industrials - Still much room to fall before the previous cycle trough is met, meaning we are far from a recession.

(Click on image to enlarge)

Manufacturing was down 0.9% month over month which sharply missed estimates for 0.1% growth. The lowest estimate was -0.5%. The December reading was revised from 1.1% to 0.8%. 

Capacity to utilization still had plenty of runway in December even though it was revised 0.1% higher to 78.8%. Now it has much more room as it fell to 78.2%. The consensus was for 78.8% and the low end of the range was 78.5%.

Vehicle production was down 8.8% monthly after rising 4.3% in the previous month. Business equipment was down 1.5% after rising by 0.9%. Utilities were up 0.4% and mining was up 0.1%. Mining volumes were up 15.3% yearly and manufacturing volume growth was 2.9%. 

Manufacturing growth doesn’t include price inflation. Including it gets growth to the mid single digits. In summary, this report was bad. But not bad enough to suggest a recession is coming soon as year over year growth only fell from 4.1% to 3.8%.

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