Industrial Production Falls More Than Expected

December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent. Utility output, down 2.0 percent, declined for a third straight month reflecting unseasonably warm temperatures. Mining, reflecting low commodity prices and contraction in energy extraction, has also been week, down 0.8 percent for a fourth straight decline. Turning to manufacturing, which is the most important component in this report, production fell 0.1 percent for a second straight month (November revised downward from an initial no-change reading).

Details on manufacturing include a second straight contraction for vehicles, down 1.7 percent following November's 1.5 percent decline. Weakness here, along with weakness in the motor vehicle component of this morning's retail sales report, will raise talk that the auto sector, which had been one of the highlights of the 2015 economy, may slow down in 2016, at least the early part of the year. Construction supplies are a positive, up 0.6 percent for the second strong showing in three months and confirming strength underway in data for construction spending.

Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent. A low utilization rate, which is running roughly 4 percentage points below its long-term average, holds down the cost of goods.

Year-on-year rates confirm weakness, down 1.8 percent overall with utilities down 6.9 percent and mining down 11.2 percent. Manufacturing is in the plus column but it's nothing spectacular, at plus 0.8 percent.

Making matters worse is a downward revision to November, now at minus 0.9 percent vs an initial decline of 0.6 percent. Looking at the annualized rate for the fourth quarter, industrial production fell 3.4 percent though manufacturing did increase but not much, up 0.5 percent. Weather factors are skewing utility output but otherwise, readings are fundamentally soft and reflect the downturn in global demand made more severe for U.S. producers by strength in the dollar.

Note that the traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

Recent History Of This Indicator:
Manufacturing production in November, coming in unchanged, wasn't able to extend October's strength. And forecasters see no strength and no change for December. Industrial production, which includes utilities and mining, is expected to extend its declines, down 0.2 percent in what would be a fourth straight dip. Weakness in utilities reflects unseasonably warm temperatures while weakness in mining and manufacturing reflects weak energy and export markets.