At least the manufacturing sector is holding up.
On a day when retail sales posted a “big league” disappointment, factory production showed a 0.9% rise for December, the eighth consecutive monthly increase.
That was better than estimates, and, when juxtaposed with the malaise in leisure and hospitality employment as well as falling retail sales, one is left to ponder a bifurcated economy.
Overall, industrial production for December rose a better-than-expected 1.6%, topping even the most optimistic forecast from 68 economists.
That’s generally consistent with other measures of factory resilience, including, of course, ISM, which printed a scorcher for December.
You might recall that the best ISM manufacturing print in two years was accompanied by color that pointed to inflationary pressures. IHS Markit flagged similar dynamics.
With that in mind, note that the preliminary read on University of Michigan sentiment for January came packaged with a huge jump in one-year inflation expectations (red in the figure).
Longer-term expectations rose to 2.7%, matching five-year highs also hit in September, August, and May.
At the same time, sentiment slipped, albeit marginally. The headline gauge from the University of Michigan printed 79.2, a touch below estimates and down from December’s 80.7. Both the current conditions and expectations gauges posted modest declines as well.
As usual, the survey’s chief economist, Richard Curtin, was forthright.
“Consumer sentiment posted trivial declines in early January despite the horrendous rise in COVID-19 deaths, the insurrection, and the impeachment of Trump,” Curtin wrote, delivering a rather blunt recap of recent events. “Two offsetting shifts helped narrow the January loss in sentiment: The COVID-19 vaccines and a partisan shift in expectations due to the anticipated impact of Biden’s economic policies.”
Fingers crossed that both the vaccines and those policies work. Because, resilience in American manufacturing notwithstanding, mass joblessness, declining consumer spending, a deadly epidemic, and rising inflation expectations among consumers, is not a good cocktail.
Not a good cocktail times two. If there is to be a next cohort to get riled up, it’s the suburban middle class (all jokes aside, and we do still have one) who have jobs, are raising kids, paying the mortgage, and looking forward to a 2021 Hyundai crossover.