Core Strategic Partners: Hopes that the steady decline in US industrial output had come to an end with January’s surprise gain were dashed this week after Federal Reserve data showed that the country’s industrial production declined by 0.5% in February compared with consensus forecasts for a 0.3% decrease.

Output was weighed down by significant declines in utilities and mining but manufacturing provided a bright spot by posting a rise for the second month in a row coming in at 0.2% after a 0.5% gain in January.

“Industrial output is being hampered by the continuing low oil price, the strong US dollar and weak global demand. We think that later on this year, we’ll be looking back on this quarter as being the first or second quarter of a US recession,” said Will Masson, chief markets strategist at Core Strategic Partners.

Despite the numbers, optimism on the US economy is not in short supply with many investors still convinced that the Fed will be able to raise interest rates at least three times in 2016.

Core Strategic Partners has ruled out the possibility citing a weak consumer, poor wage growth and anemic demand in Europe and slowing GDP growth in China. “It’s folly to believe that the Fed can continue on a path of tightening policy when every central bank in the world is easing to boost their economies,” said Masson.

“While manufacturing appears to be over the worst of its contraction, it only accounts for 12% of US GDP so it is unlikely, on its own, to be enough to turn the tide on US economic growth,” concluded Masson.

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