12 months and counting as the Industrial deceleration that pre-dated the pandemic remained entrenched with Y/Y growth holding negative again in August.
A few quick highlights:
- Headline Industrial Production = +0.36% M/M and decelerating to -7.73% Y/Y. With sequential growth slowing, Y/Y growth actually deteriorating in the latest month alongside a worsening 2Y growth comp, the mechanical rebound in (Industrial) activity appears to be stalling out – a dynamic similarly and increasingly evident in the labor data as well.
- The Noise: The pandemic disrupted typical auto factory activity (retooling shutdowns in July, which results in compensatory seasonal adjustments for both July and August) resulting in prospectively noisy seasonals which likely augmented reported July activity while depressing August. Moreover, the sequential comp setup for Utilities was unfavorable given widespread heatwave activity in July and further compounded by rolling CA blackouts and regional (re)containment initiatives.
- Consumption Renormalization: Some measure of push-pull will characterize the coming months with respect to Industrial and manufacturing activity. While the leading ISM and Fed Regional Survey data continue to signal plodding improvement and cross-channel inventory levels have come down and will remain a moderate tailwind to production activity, the step-function juicing associated with the restart of auto manufacturing is now rearview, the household splurge on durables consumption will continue to ebb while capex is unlikely to emerge as a large-scale driver of industrial/manufacturing demand over the nearer-term given depressed demand, rampant excess capacity and ongoing margin contraction/negative earnings growth.
Recall, the combination of stimulus payments, enhanced U.I. benefits and WFH/lockdown initiatives all served to support/divert household spending towards Goods Consumption (Retail Sales). Tomorrow’s Retail Sales data will offer some further insight on the extent to which consumption re-normalization is materializing and whether here-to strength in collective domestic consumerism can hang in in the face of reduced unemployment outlays, full exhaustion of PPP support funds, fading labor market gains, a rolling expiration in forbearance programs and a kinked VIX curve increasingly discounting the dystopian prospects of a contested election.
