Peak Manufacturing?

The March industrial production report wasn’t as amazing as the ISM PMI indicated, but monthly & yearly growth improved sharply partially because of very easy comps. Monthly industrial production growth was 1.4% which increased from -2.6% but was half of the estimates. Yearly growth spiked from -4.8% to 1%. The comp was 4.5% easier, so that’s not as impressive as it seems. Yearly growth was the highest since June 2019 because the economy was in a slowdown in the 2nd half of 2019 and early 2020. The economy was just about to exit its slowdown right when COVID-19 started.

As you can see from the chart below, from February 2020 to March 2021, the industrial production index has fallen from 109.3 to 105.6.

There is still plenty of room for the recovery to go; it’s just that the PMIs have probably peaked or are near their peak. In theory, that means the rate of improvement in industrial production has peaked, but it’s possible the correlation is imperfect. We’re seeing a minor decoupling already in that the March ISM manufacturing PMI was 64.7 (best in decades), yet industrial production growth was just 1.4% (decoupling was greater in February). It’s possible to be more bullish on the actual data than the survey data.

Monthly manufacturing output growth was stronger than industrial production, but it also missed estimates. Growth rose from -3.7% to 2.7% which missed estimates by 0.9%. That’s not that impressive given the very easy comp. That being said, it’s a little closer to its pre-pandemic level than industrial production. The index is down from 106.1 to 104.3. Yearly growth spiked from -4.4% to 3.4%. Just like industrial production, net month’s comp will be the easiest of the cycle. Just like with retail sales, yearly growth will be extremely high. It could even set a record if the regional Fed indexes are a proper early tell for April’s data.

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