Industrial Production and Capacity Utilization Reach Tankola Levels

A report on industrial production for December 2015 looks rather ugly. Many people think that America doesn’t produce things anymore, but that just is not the case, as long as you don’t focus on this report. Industrial production fell by 0.4% in December. There was bad news in capacity utilization as well.

Friday’s industrial production report was from the Federal Reserve. Bloomberg’s consensus estimate from EconoDay was for a drop of 0.2%, from a range of -0.5% to 0.5%. To add insult to injury, the more negative report of -0.6% in November was revised to -0.9% after more data came in.

The Federal Reserve said that the December drop was primarily as a result of cutbacks for utilities and mining. The larger decrease for November was put in context for year-end data as follows:

For the fourth quarter as a whole, industrial production fell at an annual rate of 3.4 percent. Manufacturing output edged down in December. The index for utilities dropped 2.0 percent, as continued warmer-than-usual temperatures reduced demand for heating. Mining production decreased 0.8 percent in December for its fourth consecutive monthly decline. At 106.0 percent of its 2012 average, total industrial production in December was 1.8 percent below its year-earlier level.

Capacity utilization for the industrial sector decreased by 0.4 percentage points in December to 76.5%. That rate is 3.6 percentage points below its long-run average covering the years 1972 to 2014. The capacity utilization rate for manufacturing was little changed in December at 76.0%, some 2.5 percentage points below its long-run average.

Additional data from the Fed was as follows:

  • Manufacturing output slipped 0.1 percent in December and increased at an annual rate of 0.5 percent in the fourth quarter. Factory output in December was 0.8 percent above its year-earlier level.
  • The indexes for motor vehicles and parts and for primary metals each dropped more than 1.5 percent.
  • The indexes for electrical equipment, appliances, and components and for computer and electronic products each increased more than 1.5 percent. The output of nondurables declined 0.2 percent, led by a drop of 1.2 percent for petroleum and coal products and by a reduction of 0.8 percent for paper.
  • The drop in utilities output contributed substantially to declines in the indexes for consumer goods, business supplies, and materials.
  • The indexes for defense and space equipment and for construction supplies each rose 0.6 percent.

Now consider that most of the Fed presidents have continued talking about rate hikes so far in 2016.