US manufacturing and construction boost the case for a strong 2022

It is a strong end to 2021 for the goods-producing sectors of the US economy. Manufacturing output rose 0.7%MoM in November, in line with expectations, while October's growth was revised up to +1.4%MoM from +1.2%. Significantly, vehicle output posted a second consecutive rise – a +2.2%MoM gain after a 10.1% jump in October, which suggests some easing of supply chain strains. Ex-autos, output was still up 0.6%MoM after a 0.8% increase in October.

Mining rose 0.7% given the increase in oil and gas rig counts following the spike in prices, but utilities fell 0.8%MoM, presumably on milder weather nationally reducing the need for heating. In aggregate, industrial production rose 0.5%MoM after a 1.7% increase in October.

Manufacturing output is now up 1.7% on December 2019 levels, but it remains 7.3% below its December 2007 all-time peak given the intense global competition the US continues to face. Nonetheless, with the ISM reports continuing to point to strong growth and the regional manufacturing surveys also offering encouragement with healthy order books we are hopeful that the sector can continue eating into this deficit through 2022.

There were also some very strong housing starts data, which showed activity rising 11.8%MoM with building permits rising 3.6% versus consensus forecasts of 3.1% and 0.5% respectively. It has been a strong end to the year for the construction sector after a softish first half to 2021. Mortgage applications for home purchases are trending higher and there seem to be plenty of cash buyers out there and this pipeline of demand should keep construction in decent shape for 1Q 2022 at the very least.

As such, while we are cautious that a potential surge in Omicron cases could lead to more consumer caution and softer spending growth on leisure and entertainment in early 2022, this can at least be partially offset by decent construction and production numbers.