January Industrial Production

Industrial Production fell in January. The Federal Reserve’s measure of physically made goods dropped by 0.3 percent and erased all of December’s improvement. The downtick was led by the largest components of the indicator, but a substantial surge from utilities offset some of the weakness. The nation used a smaller proportion of its capacity to start the year as well.

Manufacturing and mining fell in the period. These are the two largest components of the indicator and they dropped 0.8 percent and 0.9 percent respectively. Industrial production would have suffered a greater loss if utilities had not jumped 4.1 percent. The uptick it utilities is probably explained by the weather as more heating was needed during the bitterly cold January; The polar vortex must have made some impact on the other two categories as well. Overall, the nation’s physical output suffered in January.

Capacity utilization fell to start the year. This is not surprising given the fact that output declined. The ratio of use to potential fell to 78.5 percent, dropping from 78.9 percent in December. The long-run average for utilization is 80.1 percent, so there is plenty of room for additional output before an increase in our nation’s productive capital would become imperative.

Industrial Production is providing another indication that 2014 is off to a slow start. It is just one month’s worth of data, but other indicators, like retail sales and the Institute for Supply Management are, along with industrial production, suggesting the first quarter will likely grow at a reduced pace compared to the final three months of 2013. (by C. Cox)