Industrial Production Falls Sharply

A downside manufacturing reversal from an oversized December gain pulled down industrial production volumes by a sharp 0.6 percent in January which is outside Econoday's low estimate. Manufacturing production fell 0.9 percent after rising a revised 0.8 percent in December.

Vehicle production has been behind much of manufacturing's two months of swings, falling 8.8 percent in January after rising 4.3 percent in December. But business equipment, falling 1.5 percent after December's 0.9 percent gain, has also contributed to the volatility.

Utilities, up 0.4 percent, helped limit the weakness in today's report while mining was only marginally positive, at 0.1 percent. But mining is still the standout component as year-on-year volumes in the sector are up 15.3 percent. This dwarfs manufacturing's yearly rate of 2.9 percent which, because it excludes price effects, is deceptively low. When including inflation, manufacturing is running in the mid-single digits which is a healthy and welcome rate of growth.

But this report isn't as bad as it looks and averaging December and January together points to modest but still positive activity for the industrial sector. Nevertheless recent economic indications -- outside of the labor market which remains very strong -- have been moderating and pointing to easing momentum early in 2019.