It commonplace to blame the weather for sub-par economic performance, but it’s rare to see reports give weather its due when when things look good. Today, the latter happened.
Industrial production in December rose a sharp 0.8% compared to an Econoday consensus of 0.6%. However, the good news stops there.
A weather-boosted 6.6 percent surge in utility output fed an outsized 0.8 percent gain in industrial production for December, one that follows however a downward revised and very sharp 0.7 percent decline in November. The monthly surge for utilities is the greatest since December 1989.
The big story in this report, however, is another soft reading for manufacturing production where volumes rose only 0.2 percent in the month. And if it wasn’t for a sharp 1.8 percent gain in the vehicle subcomponent, manufacturing would have shown no change at all.
Mining, which together with utilities and manufacturing, is a main component of the report, and production here was unchanged. Year-on-year rates show mining still at the rear at minus 2.8 percent with utilities at plus 6.2 and manufacturing no better than December’s monthly rate, only 0.2 percent higher.
Overall capacity utilization rose a sizable 6 tenths to 75.5 percent with the manufacturing component, however, up only 1 tenth to a still subdued 74.8 percent rate in a reminder that excess capacity holds down goods inflation.
The factory sector, hit by weakness in exports and also energy equipment, struggled through 2016 and apparently could not manage a solid year-end rally.
Industrial Production Index
The best way to view last month and this month is to average them. -0.7 and +0.8% is essentially a flat two-month move.
Industrial production, as measured by the Fed, peaked in December 2014. It has been trending lower for two full years and remains below the December 2007 high.
Mike “Mish” Shedlock