US: Road ahead for the factory sector remains bumpy - Wells Fargo


US Manufacturing production declined in April 0.5%.  According to analysts at Wells Fargo, the data shows a continuing a weak run which has left output down 1.6% since the start of the year. They point out that amid renewed trade tensions, the road ahead for the factory sector remains bumpy. 

Key Quotes: 

“Heading into the latest tariff turmoil, the manufacturing sector was already floundering. Manufacturing production fell 0.5% in April and has yet to notch an increase this year. Some of the weakness can be traced to auto production, which fell 2.6% and is becoming more right-sized with the slowing sales environment, in addition to dealing with increased costs related to last year’s metal tariffs.”

“Although global growth has shown some tentative signs of stabilizing, the general slowdown over the course of the past year and the dollar’s strength were clearly taking a toll on the factory sector. Boeing’s production cuts to the 737 MAX were an added source of weakness, with aircraft & parts output falling 1.8%—the biggest single monthly decline since the 2013 Dreamliner issues.”

“We expect manufacturing to remain under pressure in the coming months. The latest escalation in the trade war between the United States and China is not likely to immediately show up in next month’s production figures, partly because goods already in transit are subject to the previous 10% rate.” 

“If 25% tariffs are imposed on all imports from China, the increase in inflation would erode real income growth and put further pressure on consumer goods production here at home.”

“Overall industrial production fell 0.5%, with a drop in utilities offsetting a 1.6% rise in mining output. The increase in mining was largely due to a rebound in coal production, but oil & gas extraction also improved.”

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