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Wednesday’s factory data suggest a rebound is taking hold in the manufacturing sector. Here, a Honeywell factory worker earlier this year.
Brendan Smialowski/AFP/Getty Images
Investors still betting on a V-shaped recovery, at least in some parts of the U.S. economy, got a batch of good news that underpins hope that the worst is over for the beleaguered industrial sector.
Industrial production climbed 5.4% while manufacturing output jumped 7.2% in June from a month earlier, the Federal Reserve said Wednesday. Economists expected increases of 4.3% and 5.5%, respectively, according to FactSet. In May, those rates were 1.4% and 3.9%, respectively.
The Fed’s report followed a separate dose of positive manufacturing news on Wednesday. July’s Empire State manufacturing survey, conducted by the Federal Reserve Bank of New York, rose for the first time since the pandemic took hold in the U.S. That one came in at a better-than-expected 17.2 for July, breaking a streak of contracting activity that included record lows in May and April.
Looking at the latest data, Cornerstone Macro chief economist Nancy Lazar says a V-shaped rebound in manufacturing is “solidly in place.” She notes that manufacturing production is still 11% below its January peak, and we note that a chunk of the gain was due to a huge jump (105% from May) in auto production. Excluding the more volatile automotive sector, which is still running below previrus rates, manufacturing output rose 3.9% in June from May.
Optimism around better-than-expected economic reports reflecting recovery earlier this summer should, of course, be tempered by the fact that resurgent Covid-19 cases in some parts of the country have prompted some companies and states to pause or rollback reopening plans. On Monday, California Gov. Gavin Newsom issued a statewide executive order closing indoor operations at restaurants, bars, museums and other establishments. In 30 California counties, gyms, hair salons, malls and churches are also being forced to close.
Cognizant of the virus flare-ups and the potential for renewed efforts to curb the disease to hamstring the broad economic recovery, Lazar says she’s focused on four indicators (mostly higher-frequency than monthly economic reports) that she collectively calls CRAM. The first three suggest the industrial recovery is still under way.
• Consumer confidence, which Cornerstone measures daily, has popped six points over the past six days despite rising Covid-19 cases.
• Rail shipments, meanwhile, are rising on a week-over-week basis, reflecting improving domestic manufacturing activity.
• Auto production is anticipated to increase sharply in the third quarter to roughly fourth-quarter 2019 levels.
• And mortgage apps are enjoying, in Lazar’s words, “an epic V-rebound.”
Investors were similarly optimistic Wednesday following the latest set of manufacturing data. The beaten-up industrial sector, measured by the
Industrial Select Sector SPDR ETF
(ticker: XLI) gained 2% in midday trading while the S&P 500 rose 0.7% on new vaccination hopes and better-than-expected bank earnings. Year-to-date, the XLI is still down 13%, compared with a 0.3% decline in the S&P 500.
Write to Lisa Beilfuss at [email protected]
