December 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.8% in December (+0.6% expected) after falling 0.7% in November. For 4Q as a whole, the index slipped 0.6% at an annual rate. In December, manufacturing output moved up 0.2% and mining output was unchanged. The index for utilities jumped 6.6%, largely because of a return to more normal temperatures following unseasonably warm weather in November; the gain last month was the largest since December 1989. At 104.6% of its 2012 average, total industrial production in December was 0.5% above its year-earlier level.

Industry Groups

Manufacturing output moved up 0.2% in December, as an increase in durable manufacturing outweighed declines in nondurable manufacturing and other manufacturing (publishing and logging). The index for manufacturing rose at an annual rate of 0.7% in 4Q but was unchanged from its level in 4Q2015. In December, the production of durables gained 0.5%; wood products: -0.3%. Primary metals recorded a sizable increase for a second consecutive month, and motor vehicles and parts registered a jump of 1.8% to nearly reverse its drop in November. Most nondurables industries posted declines in December; the biggest decreases were recorded by textile and product mills and by chemicals, at 3.0% and 1.0%, respectively; paper: -0.2%.

The output of mining was unchanged in December. Gains posted in crude oil extraction and in oil and gas well drilling and servicing were offset by declines reported in other mining categories. After having fallen for six consecutive quarters, the index for mining advanced 3.4% at an annual rate in 3Q and jumped nearly 12% in 4Q. 

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Capacity utilization (CU) for the industrial sector increased 0.6 percentage point in December to 75.5%, a rate that is 4.5 percentage points below its long-run (1972–2015) average.

Capacity utilization for manufacturing moved up 0.1 percentage point to 74.8%, a rate that is 3.7 percentage points below its long-run average. The operating rate for durables, at 76.2%, was 0.7 percentage point below its long-run average (wood products: -0.6%); the rates for nondurables and for other manufacturing (publishing and logging), at 74.2% and 60.6%, respectively, were substantially below their long-run averages (paper: -0.1%). Utilization for mining increased 0.2 percentage point to 78.1%, and the rate for utilities jumped 4.8 percentage points to 79.1%. 

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Capacity at the all-industries level nudged up 0.1% (+0.4% YoY) to 138.6% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 138.1%. Wood products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.6% YoY) to 170.6%. Paper edged down 0.1% (-1.2% YoY) to 116.1%.

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.