December Industrial Production

The Federal Reserve reported America’s industrial production grew 0.4% in December after a 0.3% decline the prior month.  While overall this sector of our economy represents a relatively small portion of the total production generated by the U.S. (between 15 to 20% of the total) compared to services which make up the lion’s share, it is an important indicator in many respects.

There are three components to this report.  Mining production rose a scant 0.3% while output from utilities actually fell 2.7% as demand was trimmed by favorable weather for much of the month.  It was the third piece, manufacturing, which stood out to us.  This category makes up roughly three-fourths of the total.  With all the talk about sending American jobs overseas, it is good to see manufacturing rise 0.9% after the 0.4% November drop.  This sector was well balanced as well with the output of non-durable goods rising by 0.8% while durables jumped 0.9%.  Since this latter category is made up of items usually large, long-lasting, and often expensive, its growth reflects some optimism from American corporations.

Capacity utilization is another data point in this report we here at Atlas like to monitor.  It measures the extent to which American industry is using its manufacturing capability.  Compare it to gas mileage you get with your car.  If you drive slowly you use little gas but it takes forever to get somewhere.  If you go too fast you use up more gas than intended.  In between is a happy medium; you reach your destination in time with minimal wear and tear.  For capacity utilization that is around 80% to 85% of capacity, akin to driving between 55 and 65 mph on the highway.  The Fed reported December’s rate rose a bit to 78.1% from 77.8% in November.  This is also good news, showing our economy appears to be headed in the right direction.