We Could See Below 2% Q1 GDP Growth

Solid Industrial Production Report

Even though the January industrial production report hurt the NY Fed’s Nowcast by 33 basis points, it wasn’t a bad report. It wasn’t as great as the regional Fed reports showed (all 5 improved and some spiked), but the 2-year growth stack in manufacturing production went up. Industrial production was hurt by the 737 Max’s delay and the warm weather which lowered utilities production. The capacity to utilization rate fell from 77.1% to 76.8% in January.

Monthly manufacturing growth was -0.1%; it was 0.3% excluding aircraft production. If the 737 Max goes into production later this year, manufacturing growth will pick up, but we wouldn’t advise relying on this to formulate a cyclical bull thesis. Mining production was up 1.2% monthly even though oil prices fell. Utilities production fell 4% because it was a warm month again. Yearly utilities production growth fell from -1.5% to -6.2%. Yearly industrial production growth improved from -0.7% to -0.8%, while the comp was about 0.2% easier (2-year stack fell about a tenth). The comp will fall from 3.6% to 2.7% in February which means growth might be positive in the next report.

(Click on image to enlarge)

Source: Twitter @ernietedeschi

As you can see from the chart below, the weighted average share of manufacturing sub-sectors contracting increased, while the 3-month moving average fell. This industrial production slowdown hit manufacturing significantly as you can see from the chart above.

(Click on image to enlarge)

Source: Oxford Economics

Industrial production isn’t down nearly as much because mining production hasn’t cratered. There was a mini-fracking bubble that burst from 2014 to 2016. Yearly manufacturing growth rose from -1.2% to -0.7%, while the comp only got easier by 0.2% (2-year growth stack up 0.3%). Yearly growth might be positive next month as the comp goes from 2.7% to 1.1%. The cycle low was -1.5% yearly manufacturing growth in October which is above the bottom of -2.1% in November 2015.

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