The comparison set across key economic data is difficult for 1Q24.

Last week we received an update on industrial production, which accelerated to 0.98% y/y in December, its first positive print since August. However, it is important to note the easing base effects from November into December of last year that played a significant role in the most recent y/y acceleration. The comparison set moved from 103.07 in November 2022 versus 102.43 in November 2023 for a -0.62% y/y deceleration to 101.48 in December 2022 versus 102.48 in December 2023 for a 0.98%  y/y acceleration. For the month of January, however, that y/y comparison set gets more difficult, thus without a more significant increase in industrial production, the y/y growth rate will likely decelerate on a rate of change basis to begin 1Q24. This is a good example of the easy-to-tough base effect dynamics from December 2023 to January 2024 we see in other measures like real retail sales, core factory orders, and core factory shipments.

Source: Macrobond. 

With the tougher base effects in mind, we can look at January updates from the New York, Philadelphia, and Richmond Fed bank surveys related to manufacturing activity. At the headline line level across those three regions, general activity slowed to an average of -23.1 for January, its lowest level since May 2020, with New York declining to -43.7, Philadelphia increasing to -10.6, and Richmond falling to -15.0. Similarly, the average for new orders dropped to its lowest level since May 2020 at -27.8, led by a decline of 38.1 points in New York to -49.4. While the 5-district average could rise after the release of Dallas and Kansas Fed surveys, the current trend suggests demand has not improved to begin the first quarter.

Source: Macrobond. 

Next week we will get an update from the Institute of Supply Chain Management’s Purchasing Managers’ Index for further context on the direction of manufacturing activity and broad economic activity.

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.