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There’s a tone of weakness in the market this morning ahead of another busy morning for economic data with PPI, Housing Starts, Building Permits, Jobless Claims, and the Philly Fed all being released at 8:30.  The S&P 500 is poised to open down about 40 basis points (bps) while the Nasdaq is down closer to 0.5%.  Despite the weakness in equities, Treasuries are actually trading modestly higher as crude sees modest gains.  The only real asset class showing strength is crypto as bitcoin is up nearly 2%.

Overshadowed somewhat by the much stronger-than-expected Retail Sales report, yesterday’s update on Industrial Production for January missed forecasts by a wide margin showing no growth in January versus forecasts for an increase of 0.5%.  January’s report marked the second straight month that Industrial Production was 1.5% or more below a 12-month high which is the largest decline from a peak since the COVID crash.  Looking at the chart below, there have been plenty of other times when Industrial Production showed larger declines.  That being said, in the majority of instances where Industrial Production dropped this much or more, a recession wasn’t far behind.  There were exceptions but not a lot of them.

This doesn’t mean that a recession is imminent.  Every period is different.  What the current period has going for it is that consumer balance sheets were in great shape heading into the current FOMC tightening cycle, and the employment backdrop remains positive.  The hope is that these factors will provide a long enough bridge to get over the valley of the manufacturing sector’s slowdown.

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