January 2019 Industrial Production

Industrial production took a hit to start 2019 according to the latest release from the Federal Reserve.  Their indicator which covers everything physically made in America declined 0.6 percent in January.  This set back followed a downwardly revised tally of +0.1 percent (originally +0.3 percent) in December.  Not only was the monthly tally negative, but the trend decelerated as well: the year-over-year rate of change fell to 3.8 percent (the lowest reading since June 2018) from 4.1 percent at the end of last year.

Manufacturing is to blame for this slowdown as the other two major categories were positive.  Our nation’s factory output dropped 0.9 percent, giving up all of the prior period’s gain and then some; durable goods led the decline due to a pronounced drop for motor vehicles.  However, output of nondurable wares was unchanged from a month earlier.  Mining continued its growth trend, rising 0.1 percent in January and 15.3 percent from a year ago.  Finally, utilities output increased 0.4 percent as natural gas production rose 6.0 after plummeting 19.0 percent a month earlier.

Capacity utilization took a hit as well in January. Our nation used 78.2 percent of its potential versus 78.8 percent a month earlier.  For some perspective, the long-term average (1972-2018) is 79.8 percent, but the tally was 77.0 a year ago, so an upward trend remains intact for this segment of the report.

Manufacturing is sensitive to the business cycle.  Seeing America’s factory output take such a big hit in January caught Atlas’ attention.  When February’s data are released next month, it will be the first thing we look at in order to see if this portion of output slowed further.  However the release turns out, we’ll let you know about it in a future morning note.