U.S. industrial production weakens considerably in January

U.S. industrial production softened significantly in January, reflecting transitory impacts from the government shutdown, as well as wider impacts from softer global demand, fading impacts of fiscal stimulus, and the drag on interest-rate sensitive sectors resulting from the Fed’s tightening cycle. In all, on a sequential basis, industrial production dropped 0.6 percent in January on the heels of a downwardly revised 0.1 percent sequential rise in December. The January’s print was much below consensus expectations of a rise of 0.1 percent.

Falls in the overall figure were focused in manufacturing production that dropped 0.9 percent after a solid 0.8 percent rise in December.  The manufacturing figures for January also came in well below consensus expectations. Most of the fall in manufacturing was driven by the volatile motor vehicles and parts category, which swung to an 8.8 percent fall in January after December’s 4.3 percent gain. Stripping motor vehicles, manufacturing dropped 0.2 percent after a strong 0.5 percent gain in November.

Delving into details, most of the softness was seen in durable goods components, possibly reflecting the decelerating pace of business investment in the latter half of 2018, ongoing softness in residential construction, and shutdown-related effects on government-sensitive components. Manufacturing activity could be very volatile on a sequential basis and therefore one should not take too much hint from any monthly figure, noted Barclays in a research report. Smoothing through some of this volatility, ex-motor vehicle manufacturing production rose 1.9 percent on a three-month basis, down slightly from the typical rate in the few quarters after 2018’s double dose of fiscal stimulus but still strong.

Meanwhile, utilities production grew 0.4 percent sequentially after December’s 6.9 percent fall, as temperatures reverted to seasonal norms after an unusually warm December. In the meantime, mining activity recorded a rise of 0.1 percent, down from the solid gains of 1 percent in October and November, reflecting the drag on exploration activity from the sharp net fall in oil prices since early October.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -53.4888 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex