February 2019 Industrial Production

Industrial Production staged a minor comeback in February 2019 after a stumble at the start of the year.  America’s output of all physically made good increased 0.1 percent in the period.  This modest uptick follows the upwardly revised decline of 0.4 percent (originally minus 0.6 percent). While the headline provided a quick sigh of relief, the details were less encouraging. 

Two of the three major industry groups were higher.  Utilities shot up 3.7 percent in February after falling 5.2 percent and 0.9 percent in December and January respectively.  While this substantial uptick is nice, the industry’s output is still lower than in November.  The other improvement came from mining which was up 0.3 percent for a second consecutive period.  Atlas’ dissatisfaction was from the manufacturing figure which is the largest component of the indicator.  Manufacturing fell for a second consecutive month, dropping 0.4 percent after a 0.5 percent decline to start this year and is now just 1.0 percent above its year-ago tally.  Output for both durable and nondurable wares fell in February.

Capacity utilization declined as well in the period.  Falling to 78.2, this measures the ratio of output to potential.  During strong economic times, the ratio tends to be above its historic long-run trend (currently 79.9 percent) as growing demand outpaces growing capacities.  However, our economy hasn’t reached this level during the current expansion; this is due in part to firms investing in capacity fast enough to keep up with improving demand.

Manufacturing tends to move with the business cycle.  Therefore, Atlas pays close attention to this segment of Industrial Production.  A second consecutive decline is not a development with which we are happy, especially in an environment with a declining year-over-year trend (see the chart above).  We would hope to see the trend reverse when the next iteration is released to help ease our concerns that the recent economic deceleration is becoming more serious.