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Understanding the economy of the USA and global trade is important to teach people.  I learned from years in the banking industry.  I hope this helps with how the GDP and the industrials are working in the global perspective.

Summary

  • Industrial Production
  • Deeper Look

 

Industrial Production

Friday morning, shortly before the opening bell, the Federal Reserve announced that industrial production increased 0.3% in December, following a 0.4% advance in November (revised down from +0.6% previously reported). The reading came in above expectations of a 0.2% monthly increase. Meanwhile, capacity utilization came in at 78.7%, slightly above expectations of 78.5%. Total industrial production is up 4.0% from the same time last year, while total capacity utilization increased 2.1% annually.

Although industrial production accounts for a relatively small portion of total GDP has increased.  The macroeconomic indicator as it measures output from the manufacturing, mining, electric and gas industries, and can aid in forecasting structural changes in the economy, business cycle inflection points, and inflationary trends.

In combination with capacity utilization readings, industrial production can be used as a gauge for future inflation as signs of inflation will begin to show at the industrial level via increases in the prices of commodities.  The basic materials and other input prices before trickling through the supply chain and ultimately resulting in higher costs for finished goods. This also makes it a good read for central banks such as the Federal Reserve when considering whether to raise short-term interest rates.  Rate hike expectations can drive the entire market, especially the financial sector, as they directly impact bank earnings.

Deeper Look

Digging deeper, manufacturing output – the largest component of industrial production and roughly 12% of GDP. In addition, mining production increased 1.5% in the month, following a 1.1% gain in November, while Utilities (electric and gas) output dropped 6.3%, following a 1.3% November gain. With this, manufacturing production is up 3.2% from the same time last year while mining production is up 13.4%. Utilities output on the other hand is down 4.3% from the same time last year.

Breaking down the manufacturing industry one step further, durable manufacturing output advanced 1.3% while non-durable manufacturing output increased 0.9% and other manufacturing (publishing and lodging) ticked up 0.2%.

As for capacity utilization, on a monthly basis, we saw a 0.7 percentage point increase in manufacturing to 76.5% as November’s reading was revised up to 75.8%, from 75.7% previously reported. Additionally, I saw a 0.9 percentage point increase in mining to 94.8%. However, offsetting the advances, utilities capacity utilization fell 5.2 percentage point to 75.0% in December. Annually, capacity growth has increased 1.4% in manufacturing, 6.0% in mining and 2.0% in utilities.  Click Here