Implications: Industrial production started the new year on strong footing, rising for a fourth consecutive month and posting upward revisions for prior months, as well. Industrial production has now made up 88% of the decline in activity during the height of COVID-19 lockdowns back in March and April. Moreover, the rebound seems to be re-accelerating again after slower growth late last year, with the 3-month annualized growth rate reaching 13.3% in January versus just 8.0% in November. We expect a continuing rebound in the factory-sector in the months ahead, and this morning's data on consumer spending illustrates why. January retail sales excluding the pandemic-hit restaurant sector are now up 11.2% from pre-pandemic levels. COVID-19 has clearly shifted consumer preferences from services (like travel, dining, or attending sporting events) toward goods, and with the manufacturing index still down 1.0% from its pre-pandemic level, a continued rebound will be necessary to meet demand going forward. The good news is factories are responding, with the biggest source of strength in January coming from the manufacturing sector which increased 1.0%. Looking at the details, a 0.7% decline in auto-manufacturing was more than offset by a 1.1% gain in non-auto manufacturing. Keep in mind that auto manufacturing has already made a full V-shaped recovery and is now up 1.7% versus a year ago while non-auto production is still down 1.3% over the same period. Look for monthly gains in non-auto manufacturing to outstrip readings from the auto sector as the former series continues to make up ground. Meanwhile, the beleaguered mining sector rose 2.3% in January, its third consecutive gain. Finally, utilities output fell 1.2% in January, but is set for a rebound in February due to the polar vortex the US is currently experiencing. In other recent factory-related news, the Empire State Index, a measure of New York factory sentiment, jumped to +12.1 in February from +3.5 in January. The major driver of this increase was prices manufacturers reported paying for materials and receiving for finished products, which both rose to the highest levels since 2011, signaling ongoing inflationary pressures.
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