Industrial Production Is Up/Down In January

by: John M. Mason

Summary

Industrial production rose by 0.9 percent in January, but was down by 0.7 percent year over year.

Capacity utilization also rose in January, but is still below the level it was at one year ago.

One of the drivers of the monthly rise was that temperatures fell in January from a very warm December so that the production of heating fuel rose month to month.

The Federal Reserve released the statistics on the January industrial production, and the headline it got in the New York Times was "Industrial Production Jumps Pointing to Resilience in U.S. Economy."

"Industrial production rose 0.9 percent last month, the largest increase since November 2014..."

"Industrial production in the United States had its largest gain in 14 months in January as manufacturing and utilities output increased, the latest sign that the economy regained some ground early in the year."

One major reason for the rise was that the production of heating fuel rose from December to January due to a very warm December with January having more normal temperatures. Good news! Do we have a "green shoot" here at the start of 2015! Year over year, industrial production was down 0.7 percent. December's year-over-year industrial production was down 1.9 percent. So things seem to be "less bad" at this stage.

Smoothing out some of the monthly moves and looking at the quarterly data, it seems as if the rise in industrial production peaked in the fourth quarter of 2014, as the year-over-year rate of increase hit 4.5 percent. From there, the growth of industrial production fell to 3.5 percent in the first quarter of 2015 and then dropped to 1.5 percent in the second quarter before falling to 1.1 percent in the third quarter.

In the fourth quarter, the growth rate turned to a negative 0.8 percent. The growth rate in real GDP followed the basic trend in quarterly industrial production figures during the year. The capacity utilization number for January bounced upward, reinforcing the increase in industrial production.

Capacity utilization moved up to 77.1 percent in January, up from 76.4 in December 2015, but was below the January 2015 figure of 78.7 percent. Quarterly, capacity utilization fell from 78.8 percent in the fourth quarter of 2014 to 78.4 percent in the first quarter of 2015, 77.7 in the second and third quarters, and 77.0 in the fourth quarter.

These are important numbers because they give us a picture of what is happening in the industrial sectors of the U.S. economy, a picture that is usually very closely mirrored in the real GDP numbers. However, the monthly numbers tend to jump around a lot and can produce optimistic hopes that never materialize.

Still, keep an eye on them and see how things play out. Remember, however, that they are just one bit of information in a whole bunch of other statistics. The New York Times article also included information that building permits were down 0.2 percent in January and the Producer Price Index rose by a very weak 0.1 percent. What do you focus on?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.