November 2014 Industrial Production

America’s output of physically made goods surged in November according to the Federal Reserve.  Industrial production’s monthly improvement of 1.3 percent is the largest uptick since May 2010. From a year ago, this indicator is 5.2 percent higher, the best year-over-year tally since January 2011.  At 80.1 percent, capacity utilization is now running at its long-term average.

Two of the three major industry groups increased in the period.  Manufacturing output grew 1.1 percent in November.  Furthermore, the gains were widespread with output for both durable and nondurable goods growing by over 1.0 percent, and not one category within either of these two components was negative in the period.  Output for utilities grew 5.1 percent in the period as electricity increased 4.8 percent and natural gas grew 6.9 percent.  Only mining fell in November, down 0.1 percent after dropping 1.0 percent in October.

Capacity utilization matched the average level from 1972 through 2013.  Durable goods manufacturing is primarily skewing the count higher, but even mining is a touch above its long-term average.  Makers of durable goods used 78.4 percent of their capacity versus their long-run average of 77.0 percent.  Nondurable manufacturers are still running below their average.  Mining capacity utilization hit 87.9 percent in November, putting it slightly above its 87.3 percent trend.  Despite the jump in utilities’ output, their 82.4 percent capacity utilization rate remained well below its 86.1 percent long-term tendency.

Industrial production in November was solid and is among other signs suggesting the economy is strengthening.  Employment measures are trending higher, retail sales in November were robust, and production measures all point to the economy being in a virtuous cycle.  America’s economy is not invincible, but it has many more buttresses keeping it up than at earlier points in this expansion.           (by C. Cox)