US: Industrial Production rises on solid increase in manufacturing – Wells Fargo

Data released on Tuesday showed Industrial Production increased in November 0.4%. Analysts at Wells Fargo, point out the better than expected outturn was driven primarily by a solid 0.8% increase in manufacturing. They warn that growing pains are coming as goods-spending transitions to services.

Key Quotes: 

“Industrial production increased 0.4% in November, which beat the consensus expectation for a 0.3% gain. After accounting for the fact that utilities had a big miss, falling 4.3% during the month, it feels like a larger beat. Mining added 2.3% after having been down in the prior month. More importantly, manufacturing—which comprises three quarters of all industrial output—grew another 0.8% in November. As a whole manufacturing output is still about 5% shy of its pre-recession peak set in December of 2018.”

“There are a few factors helping manufacturing’s rebound. One is that implementing social distancing and facemasks is easier to implement on a shop floor where safety protocols have been commonplace for years. Another is the composition of consumer spending has favored goods outlays at the expense of services, so far at least.”

“This dynamic of manufacturing activity having rebounded more swiftly than other parts of the economy that are more closely aligned with the service sector is already starting to shift. Survey data show that while this trend is still intact, the momentum may be fading somewhat. Both the headline ISM at 57.5 in November, and the production subcomponent at 60.8 came in a bit softer compared to where both measures were in October, but both were still comfortably in expansion territory.”