Total industrial production in America declined in January by 0.1 percent, according to a new report from the Federal Reserve Board of Governors. That was the first monthly drop since August and much worse than the 0.2 percent gain economists had expected. Most of the weakness in January was due to softer construction and mining activity, while business equipment spending posted a solid gain. The latter might have been a side-effect of the recently passed tax cuts in Washington, although the December figure was revised lower. Elsewhere in the report capacity utilization, sometimes used as a leading indicator of inflation and potential output, fell to 77.5 percent, worse than forecast but still one of the higher readings of the past few years.
Next, manufacturing activity in the northeast region of the country cooled in February, according to new data from the Federal Reserve Bank of New York. Specifically, the general business conditions index fell from 17.7 to 13.1 this month, worse than anticipated and the weakest headline reading since July. Under the hood, shipments and inflation (margin strain) were the main detractors from the index in February, while measures of new orders, employment, and hours worked improved. Forward-looking (six months ahead) activity gauges were a bit more mixed, and surveyed manufacturers’ plans to boost capital expenditures and technology investment pulled back from cycle highs. Slightly more encouraging is manufacturing activity in the Mid-Atlantic region of the country, which expanded at a faster pace this month, according to a new report from the Federal Reserve Bank of Philadelphia (FRBP). Specifically, the general business conditions index rose from 22.2 to 25.8 in February, significantly better than expected. Prices received, though, continued to rise much slower than prices paid (margin strain), and surveyed manufacturers said that they expect employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters.
Sources: Econoday, FRBG, FRBNY, FRBP, ZH, FRBSLPost author: Charles Couch