Output in the industrial sector increased at a slower rate than expected last month—0.1% vs. the 0.3% gain projected in Econoday.com’s consensus forecast. A darker picture emerges when we focus on the manufacturing component, which represents the lion’s share of industrial activity. So-called factory output slumped 0.2% last month, the third consecutive monthly decline, the Federal Reserve reports.
It’s obvious that growth in the industrial sector is slowing, or so today’s numbers show. Business survey data for manufacturing paints a brighter profile for February—see Markit’s current release for its purchasing managers index, for instance. Based on today’s hard data for the broad industrial sector, however, growth is decelerating by more than a trivial degree. It’ll be useful to compare today’s results with the next round of survey data for manufacturing. The next update on the mood this month in manufacturing via Markit, for instance, is due next week (Mar. 24).
As for today’s Fed numbers through last month, the year-over-year data for industrial production clearly shows a change in the trend. The headline industrial figures as well as the manufacturing component reflect a sharp slowdown in growth. Output overall expanded by 3.5% for the year through February (3.4% for manufacturing), which represent the slowest gains since early 2014.
Today’s news comes in the wake of last week’s weak report on retail spending in February, which marked the third monthly decline in a row. Meantime, today’s Markit update on business sentiment (broadly defined) in the US slumped to its lowest level since 2009 (when this particular survey began).
The US labor market isn’t showing any signs of stress, at least not in the data published to date. The question is whether the wobbly numbers that are beginning to show up in other corners of the economy will begin to infect payrolls? Only time will tell, although this Thursday’s weekly update on initial jobless claims may provide a clue, one way or the other.
Meantime, it appears that the US macro trend is slowing relative to the recent past. It’s unclear if this is short-term noise—perhaps due to a harsh winter?—or something deeper, with longer-lasting effects. Clarity is coming, albeit one economic update at a time. Keep in mind that there’s still quite a lot of forward momentum in the economy that will maintain growth for the near term. But as I’ve been discussing on these pages for the last two months, there are rising doubts about the evidence in favor of economic acceleration. Today’s report on industrial production certainly feeds those doubts anew.
The next major clues arrives in tomorrow’s monthly update on new residential housing construction for February. Here too the numbers are expected to be softer relative to the previous month, according to Econoday.com’s consensus forecast. If so, we’ll have another data point for wondering if the economy’s strength is fading, in which case the Federal Reserve will be under renewed pressure to keep rates lower for longer and delay the first interest hike… again.