Industrial Production Increased 0.5% in February
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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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Posted on Thursday, March 17, 2022 @ 11:25 AM

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