Tuesday, 19 of February of 2019

Economics. Explained.  

Industrial Production

February 15, 2019

Industrial production fell 0.6% in January after having risen 0.1% in December.   During the past year industrial production has risen 3.8%.  Despite monthly wiggles, production continues to trend upwards.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) fell 0.9% in January after having risen 0.8% in December.  The January drop was led by motor vehicle production which plunged 8.8% in that month, but that decline should be reversed in the months ahead.  During the past year  factory output has risen 2.9% (red line, right scale).   Factory activity in January hit a speed bump, but given that it occurred in the wake of a 20% selloff in the stock market, a Fed rate hike in that month, and the beginning of a government shutdown, it should perhaps not be too surprising.  But because the stock market has already recovered most of what it lost in the fourth quarter, the Fed has promised to refrain from further rate hikes for the foreseeable future, and the shutdown has finally come to an end, manufacturing activity should rebound in the months ahead.

Mining (14%) output rose 0.1% in January after having climbed 1.5% in December.  Over the past year mining production has risen 15.3%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling fell 0.9% in January after having declined 0.3% in December.     Even with the declines in recent months, over the course of the past year oil and gas well drilling has risen 15.3%.

Utilities output rose 0.4% in January after having plunged 6.9% in December as relatively warm weather trimmed the need for heating.  During the past year utility output has declined 5.6%.

Production of high tech equipment rose 0.1% in January after having climbed 0.3% in December.  Over the past year high tech has risen 6.5%.  Thus, the high tech sector sector appears to be expanding nicely. This is an indication that nonresidential investment is continuing to climb which is, in turn, a signal of renewed growth in productivity.

Capacity utilization in the manufacturing sector fell 0.7% in December to 75.8%.  It remains somewhat below the 77.4% level that is generally regarded as effective peak capacity.  However, factory owners will soon have to spend more money on technology and re-furbishing or expanding their assembly lines to boost output.

Stephen Slifer


Charleston, SC

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