skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

All's Well in Manufacturing

Data released today showed a 0.3% increase in total industrial production (IP) and a nice 1.0% increase in the crucial manufacturing component. In addition to the December gains, November output for overall IP and factory IP was revised up 0.2% and 0.1%, respectively.

The chart shows the major factory components. The volatile vehicles sector showed a jump in output in December. High-tech bounced a bit after early-4Q18 softness. The remaining "basic" factory sectors showed strong December growth on top of a steady uptrend in previous months. Among non-manufacturing industrial sectors, utilities output dropped back to its flat trend in December, oil drilling activity continued to inch lower, and interestingly enough, actual oil output continued to grow despite the lower oil prices (not shown).

In the early and middle months of last year, we were less enthralled than most by the pace of US economic growth. We thought the 3%-plus GDP growth rates were due to temporary improvements in foreign trade and inventories. Similarly, in the last months of 2018, when recession fears engulfed some, we were more upbeat, thinking that growth was merely slowing back to a more sustainable pace in the low-2% range.

Both those takes were rooted in the fortunes of US factories. It was in manufacturing where improving foreign trade, inventories, and capital spending were boosting output. Similarly, though foreign trade and capital spending stalled in late-2018, factory activity continued to grow at a decent rate, minimizing the chances of a serious slowing in the overall economy.

Some manufacturing indicators had been giving off less favorable signals in the last few months. Factory orders and shipments went flat in 4Q18, and even hours worked and production data for manufacturing got a bit "wobbly" in October and November. However, the payroll jobs report two weeks ago showed robust December growth in factory hours worked, as well as an upward revision to November, and those developments were reflected in today’s data.

Economic growth has pulled back enough to forestall aggressive Fed tightening and keep long Treasury yields stable. Meanwhile, the absence of any actual weakness in the economy could allow credit spreads to contract from their currently elevated state.

Industrial Production, High- & Low-Tech Manufacturing
Industrial Production, High- & Low-Tech Manufacturing
Source: Federal Reserve Board. As of 31 Dec 18

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.