This recent release of the manufacturing and industrial production data added further support to our view that the much touted economic recovery has yet to manifest itself. The latest data showed that manufacturing in January fell back but after strong gains in December and November. However, it is important to remember that the gains at the end of 2012 were driven by the effects of Hurricane Sandy and the "Fiscal Cliff." That ramp up in November and December is likely to leave a void in demand in the coming months - so January's weakness is likely a return to a more normalized trend. What is clear, however, is that the economic data is not markedly improving. While monthly data points will remain volatile it is the trend of the data that is most telling about macroeconomic future. Currently, that outlook remains one of a "struggle through" environment at best. The belief, currently, is that the economy in the U.S. can decouple from the rest of the globe and act as an island of economic prosperity. With 40% of corporate profits tied to international exposure it is unlikely that the U.S. can remain decoupled from the rest of the global community for long.
The chart below shows U.S. industrial production as compared to the Eurozone. It is clear that the drag from the Eurozone is weighing on domestic output.
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