Industrial Production in the US Closed 2018 on an Upswing

According to the Federal Reserve, US factory output grew at a rate of 1.1 percent last month.  While that might seem like a very low number—and it is—the sentiment is positive because economists had actually expected industrial production to remain flat. Still, the rate is unimpressive when compared to 4 percent growth from the same time last year.  The biggest jump we saw last month was in vehicle production, at 4.7 percent, boosted by more demand for light trucks; and up 7.8 percent from one year ago. 

Production of construction supplies rose 1.6 percent but business equipment production grew by only 0.5 percent. Even that marginal growth, however, is still a decent indicator that business in the United States continues to invest in expansion even amidst an unstable stock market. More importantly, this half-a-percent contributes to an overall 5 percent bump in the sector on the year. 

It is also crucial to look at factory output, which accounts for 75 percent of all industrial output.  Last month, then, factory output followed November’s 0.4 percent growth with a small bump of 0.3 percent, a rate that is right in line with economist forecasts.  Annually, though, industrial production increased by 4 percent, and that is notably higher than the 2.9 percent growth in 2017 and significantly better than the 0.5 percent in 2016. 

In other areas, mining production rose a sharp—and quite unexpected—1.5 percent while utilities production saw a dramatic fall of 6.3 percent.  Also, economists had expected a slight decline in capacity utilization. This is a metric that measures actual production against potential factory production and it rose 0.1 percent last month, to 78.7 percent on the year.  That is the highest utility production rate in nearly four years. 

Altogether, the bump in factory output seems to indicate that steel and aluminum tariffs are not impacting the US as negatively as critics had originally claimed they would.  Accordingly, the recent tax cuts combined with new tariffs on Chinese products appear to be encouraging domestic US manufacturers to expand production here at home.