Manufacturing activity chugs along, consumers take pause, as the incoming administration readies a new round of stimulus

Ryan Sitarz

Ryan Sitarz, CFA, CFP

Portfolio Specialist

U.S. manufacturing sectors continue to show signs of improvement with encouraging readings in the December ISM Manufacturing indexes, the January Empire State Manufacturing Survey and rail shipments. Additionally, December’s 1.6% surge in U.S. industrial production (Figure 1), and rise in capacity utilization to 74.5%, point to continued manufacturing strength in early 1Q21.

Consumers in aggregate have been incredibly resilient throughout the pandemic, and are now taking a breather. Initial jobless claims rose 181,000 to 965,000 for the week ended January 9. The claims reading is the highest since August (Figure 1) and could be in part due to passage of the recent stimulus package, The COVID Relief Bill, which includes additional unemployment assistance. The weak jobs numbers are corroborated by flagging consumer sentiment, with the University of Michigan Consumer Sentiment index falling 1.5 points in January to 79.2, as well as declining retail sales, which fell for the third straight month. Components excluding autos, gas and building materials declined by a particularly large -2.4% from -1.5%.

All of this suggests that individuals are temporarily increasing savings as certain employers struggle with recent government-imposed, virus-related restrictions that have led to a pullback in hiring and wage gains. When the direct stimulus payments are deployed and the next round of government spending is announced, this trend could change.

Figure 1. Industrial production shows strength as employment pulls back
Figure 1. Industrial production shows strength as employment pulls back

Source: https://fred.stlouisfed.org

Voya Investment Management has prepared this commentary for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future returns.

The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Strategy holdings are fluid and are subject to daily change based on market conditions and other factors.