Industrial Production Down in January

Industrial Production Down in January

Feb. 15, 2024
However, Oxford Economics is predicting growth of 0.5% for all of 2024.

Industrial production edged down 0.1% in January after recording no change in December, according to the February 15 report released by The Federal Reserve. 

In January, manufacturing output declined 0.5% and mining output fell 2.3%; winter weather contributed to the declines in both sectors. 

Manufacturing output fell 0.5% in January; the index for durable manufacturing edged up 0.1%, while the index for nondurable manufacturing fell 1.1%.

Among durables, the largest gains were recorded in electrical equipment, appliances, and components as well as in aerospace and miscellaneous transportation equipment.

Computer and electronic products also moved up in January, in part based on the continued strength in semiconductor production.

Nonmetallic mineral products and primary metals recorded declines of around 1%.

Declines were widespread among nondurables, with notable weather-related decreases in the indexes of petroleum and coal products, chemicals, and plastics and rubber products.

Capacity utilization for manufacturing decreased to 76.6% in January, a rate that is 1.6 percentage points below its long-run average. And Capacity utilization for the industrial sector as a whole moved down 0.2 percentage point in January to 78.5%, a rate that is 1.1 percentage points below its long-run (1972–2023) average.

Bernard Yaros, lead US economist for Oxford Economics offered the following analysis.  

Industrial production started the year worse than expected. Manufacturing was the primary source of the downside surprise in January but benefited from a meaningful upward revision to November's reported figure, which revealed a stronger recovery in motor vehicle and parts production from the United Auto Workers union strike. As expected, colder-than-average weather turbocharged utilities output but weighed heavily on mining output. Mining should recover in February from the operational challenges posed by freezing temperatures.

We look for industrial production to advance 0.5% for all of 2024, which would be more than double last year's pace. This would still represent only a modest expansion, and there are several crosscurrents that underpin our cautious outlook for industrial production this year.

High order backlogs should support motor vehicle and parts production, but financing rates have risen significantly, adding to affordability issues facing potential buyers. Boeing's woes limit growth prospects for aerospace production, which has had a strong run lately. Past tightening in lending standards and high real interest rates remain headwinds to business equipment spending.

Nevertheless, risks to our forecast are firmly to the upside thanks to excess labor demand, fiscal policy, and artificial intelligence.