Mixed Sector Performance in US Industrial Production
The US industrial production unexpectedly rose by 0.1 percent in December 2023, defying market expectations for a 0.1 percent decrease. This increase was attributed to mining’s resiliency and continued gains in motor vehicle and parts production. Manufacturing output and mining output also saw modest increases, with manufacturing edging up by 0.1 percent and mining output advancing by 0.9 percent. However, utilities output slumped by 1.0 percent due to unseasonably warm weather, impacting overall industrial production by an estimated 0.3 percentage points. The capacity utilization in the industrial sector remained at 78.6 percent in December, with the mining sector utilization rising to 93.8 percent.
Bernard Yaros, Lead U.S. Economist at Oxford Economics, highlighted the factors contributing to the positive performance of industrial production. He noted that industrial production performed better than expected, crediting mining’s resiliency and further gains in motor vehicle and parts production as more automotive suppliers return to normal operation following the United Auto Workers union strike. Yaros also emphasized the impact of unseasonably warm weather on utilities output, estimating that it shaved up to 0.3 percentage points off the month-on-month change in overall industrial production in December.
The monthly change in industrial production data showed that in November, there was no change in industrial production, while in December, it inched up by 0.1 percent. Manufacturing output remained at 0.1 percent in both months. Mining output, which had seen a 1.0 percent decline in November, rebounded with a 0.9 percent increase in December. However, utilities output continued to decline, falling by 1.0 percent in December after a 0.7 percent decrease in November. The capacity utilization in the industrial sector also remained unchanged at 78.6 percent between November and December.
This data indicates a mixed performance across different sectors of industrial production, with mining showing resilience, manufacturing experiencing modest growth, and utilities facing challenges due to unseasonably warm weather. The annual rate of industrial production in December showed a 1 percent increase, reflecting a positive trend in the sector’s performance. However, the data also revealed a decline in industrial production during the fourth quarter of 2023, indicating challenges in maintaining consistent growth.
Industrial Production Trends and Projections
The US industrial production edged up by 0.1% in December, surpassing market expectations for a decrease. The manufacturing output, which represents 78% of total production, also exceeded market expectations by rising 0.1%. Mining output saw a significant increase of 0.9%, while utilities output fell by 1%. The capacity utilization remained steady at 78.6%, which is 1.1 percentage points below the long-run average. However, the performance in the fourth quarter of 2023 showed a decline in industrial production by 3.1% at an annual rate, with manufacturing output declining by 2.2%.
The data indicates that the manufacturing sector is experiencing challenges, as evidenced by a decrease in factory output at an annualized rate of 2.2% in the fourth quarter. This decline marked the weakest year for manufacturing since 2020. Recent surveys also suggest that the manufacturing sector is continuing to struggle for momentum, with the Institute for Supply Management’s measure of manufacturing in the US being in contraction for 14 straight months. The recent surveys and annual performance indicate a need for strategies to boost manufacturing and overall industrial production.
Oxford Economics expects industrial production to advance by 0.4% for the entirety of 2024. This projection reflects a cautious optimism about the sector’s potential for growth in the coming year. The manufacturing sector, which plays a crucial role in driving industrial production, will likely require targeted interventions and policy support to overcome the challenges it faced in 2023. The performance of the manufacturing sector and industrial production as a whole can have significant implications for the broader economy, making it an important area to monitor for policymakers and market participants.
Implications and Market Impact
The unexpected rise in US industrial production and manufacturing output in December 2023 has implications for various sectors and market participants. The increase in industrial production, particularly in manufacturing and mining, signals a level of resilience in the face of challenges such as unseasonably warm weather impacting utilities output. The data is indicative of the diverse dynamics at play within the industrial sector, with different segments experiencing varying levels of growth and decline.
The performance of industrial production figures can impact the stock market and various sectors differently. For example, the growth in manufacturing output and industrial production can be viewed positively by equity investors, particularly those with interests in manufacturing and related industries. On the other hand, slower industrial production growth is preferred by bonds as a signal of more modest inflation. This dichotomy underscores the significance of industrial production data as a barometer for economic performance and market expectations.
Market participants, including investors and analysts, will likely closely monitor future industrial production releases to gauge the trajectory of the sector and its potential impact on the broader economy. Additionally, policymakers may use this data to inform decisions related to economic stimulus, trade policies, and infrastructure investments, recognizing the pivotal role of industrial production in driving economic growth and employment opportunities.
The information provided is for general informational purposes only and should not be considered as investment advice.