Jobs and retail sales data came in on the soft side earlier this month, and today’s industrial production (IP) release continued that string. Yes, the headline IP number was up a whopping 0.8%, offset only slightly by a 0.2% downward revision to November. However, all that gain was due to a 6.6% non-annualized bounce in utilities output, as winter finally came to the Northeast in December after relatively balmy weather through November.
Outside of utilities, manufacturing output was up only 0.2%, and that gain was fully offset by a 0.2% downward revision to November. Mining production had bounced over the last few months, thanks to a stabilization in oil prices, but it saw only a 0.1% gain in December, which was more than erased by a 0.4% downward revision to November.
We like to track a measure of factory production that excludes vehicles and high-tech (but still includes nearly 90% of the manufacturing sector). It showed zero growth in December, with a 0.1% downward revision to November. (See accompanying chart.) We exclude vehicles here because of the extreme short-term volatility in that sector. High-tech is excluded because while that sector is showing a 1.9% growth trend over the last two years, that pace is only a pale shadow of the 15% to 30% growth trends the sector enjoyed prior to the 2008 crisis.
Outside of vehicles and utilities, manufacturing production has been flat for the last five years. Indeed, present output levels are still lower than those of 1999. Meanwhile, again, high-tech output continues only to inch higher, while vehicle output growth has slowed over the last year. The December gain there failed to fully offset a decline in November.
Manufacturing production is one of the most important indicators we track. The simple fact is that US growth will not pick up or slow down materially unless that swing is driven by manufacturing. Recently, various indicators had provided some hope that US factory output was set to pick up. Today’s industrial production report failed to provide any support for those hopes.