FXStreet (Córdoba) – According to economists from Wells Fargo, the slump continues in industrial production and today’s report showed a negative surprise with the decline in manufacturing output.
Key Quotes:
“You can blame warm weather for another drop in utilities, but mining output fell for a fourth straight month and manufacturing output edged lower.”
“What is more disappointing, in our view, is that manufacturing output declined. This component, which comprises roughly three quarters of all industrial production, has been a stalwart notching modest gains even as other measures have declined. That changed in today’s report. Not only did manufacturing slip 0.1 percent in December, last month’s slight increase was revised to a scant 0.1 percent decline. Small as these declines might be, on the razor’s edge between growth and contraction, even small declines take on additional significance.”
“All that said, we are not throwing in the towel yet. A lot of the recent weakness in manufacturing is concentrated in motor vehicle and parts production. After consecutive monthly declines, this category fell at a 7.9 percent annualized rate over the past three months. Stripping away this notoriously volatile category, manufacturing production was up in December and still growing at a 1.3 percent annualized rate. Production of business equipment as well as construction supplies was also positive in December.”
“If the Federal Reserve is actually going to deliver on the four rate hikes that are implied in its latest dot-plot forecast, there will need to be some firming in inflation measures. Today’s report did not help on that front. Capacity utilization fell in 10 out of the 12 months in 2015 to finish the year at levels last seen in 2013. Granted, a lot of the available capacity is opening up in the mining sector, but utilization in manufacturing and utilities is down as well. During each of the past three Fed tightening cycles, capacity utilization averaged numbers north of 80 percent.”
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