Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Activity in the industrial sector continued at the stall speed in January that characterized 2023. Manufacturing activity slipped by the most in three months, demonstrating that even as rate cuts are on the horizon, current production remains constrained.Stall Speed
The stall speed of industrial sector activity that characterized 2023 continued in January, with total industrial production down 0.1% during the month (chart). Weakness was primarily due to a 0.5% drop, or the largest in three months, in manufacturing output (chart). Manufacturing activity is a bulk of industrial production, accounting for about three quarters of the total, meaning it has a large bearing on total activity. But additional weakness also came from mining output (~15% of total IP), which slipped 2.3%. The big offset was in the small but mighty utilities component of IP (~10% of IP), which rebounded 6.0% in January after being down in three of the previous four months.
Manufacturing activity continues to be constrained by economic uncertainty and higher financing costs crimping capex investment (chart). January’s output was held back by a wide range of industries. Petroleum & coal products output dropped the most, down 3.7%, and five others also reported declines of 1% or greater with a notable 1.3% drop in chemicals production, which represents about 16% of all manufacturing output.