US Industrial Production: It is more than just storms holding up industrial activity – Wells Fargo

Data released on Tuesday showed that Industrial Production dropped 2.2% in February against expectations of a modest increase. Analysts at Wells Fargo point out it was the largest monthly decline since the lockdown halted output in March and April of last year. They warn that with broad-based declines across industries, it is more than just storms holding up industrial activity.

Key Quotes: 

“The industrial sector's recovery went into reverse last month. Total production fell 2.2%, the largest decline since last spring's wide-scale lockdowns. The severe winter weather that gripped the Central United States was the largest culprit in the decline, but supply chain issues have come to the point where they are not just restraining growth, but pushing the recovery backwards.”

“While February's extreme weather wreaked havoc on utilities and mining, the manufacturing sector is also dealing with a logistics problem, and there is evidence it is getting worse.”

“February's setback in industrial production is only temporary, in our view. Orders activity remains strong, fueled by low inventories as well as consumers and businesses in a strong position to spend. Supply chain bottlenecks are set to restrain the overall pace of activity in coming months, but are emblematic of the solid demand picture that underscores the outlook. For industry in general, this is a good problem to have: demand is growing faster than productive capacity. But these are trying times for the logistics industry and supply chain managers. In our view, the top speed for manufacturing is set by a governor: the movement of global supply chains. Businesses can only ramp production when they have the inputs they need.”