January 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.9% in January (+0.4% expected). The increase was greater than expected in large part because December’s reading was revised lower (from -0.4% to -0.7%). A storm late in the month likely held down production in January by a small amount. The index for utilities jumped 5.4%; demand for heating moved up markedly after having been suppressed by unseasonably warm weather in December. Manufacturing output increased 0.5% in January and was 1.2% above its year-earlier level. Mining production was unchanged following four months with declines that averaged about 1.5% per month. At 106.8% of its 2012 average, total industrial production in January was 0.7% below its year-earlier level.

Industry Groups

As mentioned above, manufacturing output rose 0.5% in January (+0.2% expected), with increases of about 0.5% both for nondurables and durables and a small decrease for other manufacturing (publishing and logging). Within nondurables, the largest gains, about 1%, were posted by food, beverage, and tobacco products and by chemicals, while the largest decreases, about 2%, were recorded by apparel and leather and by printing and support. Paper output fell 0.5% (-2.7% YoY).

Results for the major durable goods industries were spread between a drop of 1.3% for electrical equipment, appliances, and components and a gain of 2.8% for motor vehicles and parts. Wood products IP rose 1.2% (+4.6% YoY). Within mining, substantial decreases for oil and gas well drilling and servicing, for coal mining, and for nonmetallic mineral mining were offset by increases for oil and gas extraction and for metal ore mining. 

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Capacity utilization (CU) for the industrial sector increased 0.7 percentage point in January to 77.1% (76.7% expected), a rate that is 2.9 percentage points below its long-run (1972-2015) average. Manufacturing CU increased 0.3 percentage point in January to 76.1%, a rate that is 2.4 percentage points below its long-run average. CU of industries defined as manufacturing under the NAICS system rose 0.4% (-0.1% YoY).

The operating rates for durables and nondurables each rose 0.3 percentage point, while the utilization rate for other manufacturing (publishing and logging) fell 0.1 percentage point. Wood Products CU rose 0.9% (+2.0% YoY) to 72.1%; Paper fell 0.4% (-2.5% YoY) to 81.3%. The operating rate for mining moved up about 1/2 percentage point, and the rate for utilities rose nearly 4 percentage points; the rates for both sectors were nearly 9 percentage points below their long-run averages. 

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Capacity at the all-industries level was unchanged (+1.4% YoY) at 138.6% of 2012 output. Manufacturing edged up +0.1% (+1.4% YoY) to 139.4%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+2.6% YoY) to 161.3%. Paper ticked down 0.1% (-0.2% YoY) to 116.8%.

The Federal Reserve included preliminary forecasts of industrial capacity for 2016 in the January report. Measured from fourth quarter to fourth quarter, total industrial capacity is projected to rise 0.5% this year after increasing 1.5% in 2015. Manufacturing capacity is expected to advance 1.1% in 2016, about the same pace as in 2015. Capacity in the mining sector is estimated to fall 3.2% in 2016 after rising 4.2% in 2015. Capacity at electric and natural gas utilities is projected to increase 0.8% for a second consecutive year.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.