Wells Fargo Securities Economics Group: Industrial Production Trips at the Starting Line in 2013
Area Development Online News Desk (02/15/2013)
Source: Wells Fargo Securities Economics Group
Without Utilities, It Could Have Been Worse
After an unusually mild December, the weather was more typical in
January helping to support a 3.5 percent jump in utilities output. It was
the largest monthly gain in eight months. Utilities comprises just under
10 percent of overall output, but the gain in this small component helped
offset declines in other categories and soften the headline decline in today’s
otherwise weak report.
Generally a Weak Report
Manufacturing production fell 0.4 percent in January. December’s initially
reported gain of 0.8 percent was revised higher to a 1.1 percent gain, so on
an absolute level basis, factory output is actually little changed from what
the Federal Reserve had first reported in December. What bears noting
here is the directional change for a number of key components.
Motor vehicle and parts production, for example, was off 3.2 percent on the
month. That was enough to swamp the 2.9 percent gain in this component
in the prior month. Computer and electronics production fell 0.5 percent in
January as well. Consumer products production, which makes up
27.3 percent of all output, fell 0.2 percent.
One month does not make a trend, but it seems as though the
manufacturers of consumer products and automobiles dialed back
production in anticipation of weaker demand. Consumers are adjusting to
smaller after-tax income in the wake of income tax increases and the end of
the payroll tax holiday which both went into effect in January.
That said, the weakness was not isolated to consumer-related parts of the
economy. Information processing equipment for businesses fell 0.3 percent
on the month and materials output fell 0.2 percent. Output at U.S. mines,
which comprises about 15 percent of total industrial production, fell
1.0 percent in January as well. Capacity utilization fell to 79.1 percent from
an upwardly revised 79.3 percent in December.
What Does This Mean For the Outlook?
Our Industrial Production & Business Spending Outlook published in
December laid out our base case scenario which is essentially a very weak
start to 2013 as businesses and consumers come to grips with tax increases
and spending cuts before orders and production pick up speed as the year
goes on. Today’s report is right in line with that thinking. A separate report,
released this morning from the New York Federal Reserve, offers a silver
lining. The Empire Manufacturing Index jumped to 10.04, the highest
reading since May 2012. Among the positives in that report was a jump in
the new orders component to its highest level in more than a year. While
these regional PMIs can be volatile, the ISM index has cautiously moved to
expansion territory as well.