Americans Are Making Stuff, Which Is Nice

Generally speaking, Wednesday was a good day for economic data in the US, which leaves one to again ponder if good news could be bad news soon, whether due to decreased stimulus urgency or higher yields on signs of robust activity.

In addition to January’s blockbuster retail sales numbers, factory production logged a fourth straight monthly gain, underscoring the extent to which US manufacturing is holding up better than the beleaguered services sector as the country drives towards the light at the end of the COVID tunnel. It would have been the ninth consecutive monthly increase without revisions.

Although the US economy long ago ceased to be a beast that turns on the fortunes of its factories, manufacturing has been a somewhat comforting offset at times during the pandemic.

Overall, industrial production rose 0.9% in January. That was more than twice expectations, but December was revised lower (to 1.3% from 1.6%).

This always seems dry, and to a certain extent it is. But I find it a bit amusing that actual, real activity data gets short shrift (or at least a shrug of the shoulders from market participants) while PMIs are heavily scrutinized, despite the latter being almost entirely useless when things get too hot or too cold.

In any case, before I get too far afield, note that on the whole, industrial production in the US is very nearly back to pre-pandemic levels.

The figure (below) is just for fun. So, save your “chart crime” accusations. The point is just to show that total retail sales are well above where they stood prior to COVID, and industrial production has nearly recovered on the Fed’s index. It’s apples to oranges, of course.

It’s worth noting, as a quick aside, that despite retail sales’ climb back to pre-pandemic levels (and beyond), the uneven performance in recent months and the extent to which the US consumer clearly needed massive federal assistance to keep spending, betrayed just how vulnerable America’s economic model really was (and still is).

That manufacturing proved comparatively resilient (depending on what metrics you consulted) was in part due to the nature of the occupation (i.e., services sector employment tends to be consumer-facing and high-contact, and thus not amenable to strict guidelines for preventing the spread of a highly transmissible viral pneumonia), but it perhaps illustrated that it wouldn’t be a terrible idea to move in the direction of altering the economic mix going forward.

As a highly advanced economy, the US will never likely be a manufacturing-based society again, but the pandemic laid bare the inherent perils of relying almost solely on services to drive growth. Especially when the people providing the services make next to nothing, both relatively speaking and on an absolute basis.


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