US Industrial Production: Slowly making its way back to normal – Wells Fargo

Data released on Wednesday showed Industria Procuidn in January increased 1.4% above the 0.4% of market consensus. Analysts at Wells Fargo explained that “a 9.9% surge in utility output amid the big chill in January explains the beat.” They argue “manufacturing output recorded a 0.2% increase after a scant decline in December as manufacturers contend with the ongoing supply chain crisis.”

Key Quotes: 

“The recent manufacturing data makes it clear that things continue to slowly make their way back to normal, but with resilient demand production could be even better if supply wasn't a problem. The ISM manufacturing survey for January signaled that while delivery times remain historically long, wait times for inputs have improved somewhat. Difficulty finding qualified labor, however, remains a top concern for manufactures and continues to limit the overall pace of production.”

“Even with a comparatively modest gain in manufacturing, the 1.4% overall increase in January, the level of industrial production today is 2.1% above its pre-pandemic level in February 2020. Capacity is coming back online sharply as well and at 77.6%, it is 1.3 percentage points above its February 2020 rate.”

“It is a long way back to normal, but with some incremental improvement in supply chains means American manufacturing is able to put its factories to work in way that they have been struggling to do for almost two years. Since the demand environment is so much stronger today, the frustration is that production output could be much higher still if factories, mines and utilities had all the material and people they needed to really get back to work.”