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Brian Wesbury
Chief Economist
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Bob Stein
Deputy Chief Economist
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 | Industrial Production Increased 0.5% in February |
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| Posted Under: Data Watch • Employment • Industrial Production - Cap Utilization • Retail Sales • COVID-19 |
Implications: Industrial activity continued its V-shaped recovery in February, posting a second gain on the heels of January's increase which was the strongest in nearly a year. Looking at the details, manufacturing output was the main contributor to today's headline gain, rising 1.2%. Notably, all of the gain came from manufacturing outside the auto sector, where activity rose 1.5%. Auto manufacturing continued to be a headwind, falling for the third month in a row, showing that supply-chain issues like the shortage of semiconductors remains a problem. Meanwhile, the mining sector (think oil rigs in the Gulf) posted a tepid 0.1% gain in February. We expect stronger gains from this sector in the months ahead, with oil prices currently above $100 a barrel for the first time since 2014. According to Baker Hughes, the total number of oil and gas rigs in operation in the US is still roughly 16% below pre-pandemic levels. Finally, the utilities sector, which is volatile from month to month and largely dependent on weather, fell 2.7% in February. This was expected following January's gain, which was the largest for this category since records started in 1939. Overall, we expect a continued upward trend in industrial production in 2022. Business inventories remain lean, order backlogs are elevated, and demand continues to outstrip supply. For example, today's gain puts industrial production 2.3% above pre-pandemic levels. Meanwhile, yesterday's report on retail sales showed that even after adjusting for inflation, "real" retail sales are up 14.1% over the same time period. Ongoing issues with supply chains and labor shortages are hampering a more robust rise in activity, with job openings in the manufacturing sector currently more than double pre-pandemic levels. This mismatch between supply and demand, shows why inflation has accelerated so sharply. Finally, in other manufacturing news this morning, the Philadelphia Fed Index, a measure of factory sentiment in that region, surged to +27.4 in March from +16.0 in February.
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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