Industrial production rebounded in February after a two-month drop likely because of unfavorable winter weather. Overall volume rose by 0.1% on the back of robust manufacturing production, which grew by 0.8% on the month, the Federal Reserve reported on Friday.
The total industrial production figure could have been much stronger if not for warmer weather in February that caused utility production to fall by a sharp 7.5% from a month ago. Mining rose by 2.2%, following a 2.9% drop.
Read more of RSM’s insights on manufacturing and the middle market.
The increase in manufacturing production volume can be attributed to businesses looking to replenish their inventories after the shopping holiday. Still, while retail sales posted an encouraging increase in February, the manufacturing inventory to sales ratio remained at a three-year high in January at 1.39. That should keep inventory buildup from getting out of line with future demand, which is expected to cool further.
Inside the data, manufacturing increased across all components, with motor vehicles registering the highest growth at 1.8%, following by machinery at 1.7% and computers at 0.7%.
Consumer sentiment
In a separate survey released by the University of Michigan, consumer sentiment dropped slightly to 76.5 from 76.9 in February as expectations dipped.
The slight drop does not dampen the overall strength that has characterized consumer sentiment over the past three months. What is important from the survey is that inflation remains well-anchored, with the 12-month expectations staying at 3% while the 5- to 10-year expectations held steady at 2.9%.
With solid income growth and strong household finances, consumers are looking to spend more, according to the survey. The subindexes for spending on new vehicles or a house both picked up in March while spending plans on household items were unchanged.
The takeaway
Despite overall softer economic data this week, we do not view it as a weakness. Instead, when the data is viewed over a longer time frame, it points to solid economic activity that only recently cooled from such a robust pace in the second half of last year.
In fact, slowing economic growth from last year remains in line with our expectations of softer growth this year. Gross domestic product is expected to approach 2% for the entire year, a crucial recipe for inflation to come closer to the Federal Reserve’s 2% target.
