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Industrial production and capacity utilization rise in February
*U.S. industrial production (IP) increased 0.5% m/m in February lifting industrial production to its highest level since 2018, while manufacturing production jumped 1.2% m/m pointing to resilient demand for manufactured goods despite elevated prices (Chart 1). IP is now 2.3% above its pre-pandemic level, and has accelerated in the last four months, increasing at a 5% six-month annualized rate in February despite supply bottlenecks and labor shortages associated with the omicron wave of infections that constrained production.
*Among market groups, IP of durable goods declined 1.4% m/m, weighed down by a 3% m/m decline in the production of automotive products (Chart 2). Disruptions to manufacturing and supply chains in China related to spikes in COVID-19 cases and China’s “zero covid strategy”, paired with turbulence in commodity markets and shipping related to Russia’s invasion of Ukraine could lead to a further deterioration in supply chain conditions, and further prolong the recovery of domestic auto production, which remains 8% below its February 2020 level.
*Business equipment production increased 1.9% m/m underpinned by increases in information processing equipment (1.8% m/m) and transit equipment (1.9% m/m), while defense and space equipment production increased 2.7% m/m. Production of construction supplies increased 1.6% m/m, and has increased 3.3% since February 2020, reflecting robust housing demand set against the backdrop of tight housing markets with extremely limited supply.
*Utilities production declined 2.7% m/m reflecting a return to more normal weather patterns in February following an unseasonably cold January. Oil and gas well drilling production has surged in response to sharp increases in energy commodity prices over the last three months, although February’s data does not capture the full response to Russia’s invasion of Ukraine and the U.S. ban on Russian oil and gas imports. Oil and gas well drilling production increased 3.4% m/m in February following increases of 4% and 6.2% m/m in December and January that have lifted production to within 11% of its February 2020 level, and will likely boost business fixed investment in Q1 (Chart 4).
*Capacity utilization edged up 0.3pp to 77.6, its highest level since 2019, while manufacturing capacity utilization increased 0.9pp to 78%, 2.5pp higher than its pre-pandemic level (Chart 5). The semiconductor shortage continues to weigh on auto production, with capacity utilization declining a further 2.5pp in February to 66.7%, 8.5pp below its level in February 2020.
*Responses to manufacturing sector purchasing manager surveys indicate solid growth in new orders while order backlogs remain high, and businesses across different manufacturing sectors point to supply chain bottlenecks and labor shortages as factors that continue to restrict production.
Chart 1. Industrial Production Index vs. Manufacturing Index
Chart 2. Industrial Production – Automotive Products
Chart 3. Industrial Production – Defense and Space Equipment vs. Construction Supplies
Chart 4. Industrial Production – Oil and Gas Well Drilling
Chart 5. Capacity Utilization
Mickey Levy, mickey.levy@berenberg-us.com
Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com
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