Industrial Production Dives, Wiping Out a Strong December and Then Some
Before diving into today's disaster, let's recap last month.
On January 18, I noted Motor Vehicle Production Index Hits New Record High in December.
Spotlight on Motor Vehicles and Parts
The 4.7% jump increase in motor vehicles and parts sure does not match auto sales reports from the manufacturers.
Was there a sudden jump in auto sales in December? We cannot tie industrial production numbers back to retail sales because that report is delayed.
Ford reported that its sales for December were down 9%. Ford's fleet sales and car sales both cratered, falling well into the double digits, or -19.5% and -27.8%, respectively. Ford followed GM by halting monthly sales reports.
Industrial production revisions seem likely.
Industrial Production January
Please consider the Federal Reserve's Industrial Production Report for January.
Econoday has a good synopsis, but on the rosy side as always.
A downside manufacturing reversal from an oversized December gain pulled down industrial production volumes by a sharp 0.6 percent in January which is outside Econoday's low estimate. Manufacturing production fell 0.9 percent after rising a revised 0.8 percent in December.
Vehicle production has been behind much of manufacturing's two months of swings, falling 8.8 percent in January after rising 4.3 percent in December. But business equipment, falling 1.5 percent after December's 0.9 percent gain, has also contributed to the volatility.
Utilities, up 0.4 percent, helped limit the weakness in today's report while mining was only marginally positive, at 0.1 percent. But mining is still the standout component as year-on-year volumes in the sector are up 15.3 percent. This dwarfs manufacturing's yearly rate of 2.9 percent which, because it excludes price effects, is deceptively low. When including inflation, manufacturing is running in the mid-single digits which is a healthy and welcome rate of growth.
But this report isn't as bad as it looks and averaging December and January together points to modest but still positive activity for the industrial sector. Nevertheless recent economic indications -- outside of the labor market which remains very strong -- have been moderating and pointing to easing momentum early in 2019.
Worse than it Looks
I beg to differ with Econoday. Utilities were up because it was damn cold and snowy.
The Fed revised December manufacturing from +1.1% to +0.8%. January tool all of that back plus a bit more.
Importantly, Econoday is looking through the rose colored glasses of year-over-year comparisons, still positive. But where to from here?
Retail Sales Shockingly Weak
My comment last month was "We cannot tie industrial production numbers back to retail sales because that report is delayed."
The report is out and we cannot tie them back now because Retail Sales Were Shockingly Weak: Down 1.2% in December, Sharpest Decline Since 2009.
Let's review last month's auto production numbers.
Perhaps more revisions are coming, perhaps not.
Interestingly, everyone ought to be hoping for more revisions.
If the auto manufacturers really did produce record vehicles they are sitting on a boatload of inventory they are going to have to dump.
Just what does Econoday expect from auto sales going forward? And what about weak retail spending?
There is no realistic way to spin this report as positive, but Econoday tried.
Mike "Mish" Shedlock