Manufacturing Capacity Utilization Rises to Best Reading in Four Years

• Manufacturing production rebounded strongly in December after some softness in the prior three months, jumping 1.1% for the month. Over the past 12 months, manufacturing production has risen 3.2%. More importantly, manufacturing capacity utilization soared from 75.8% in November to 76.5% in December, the best reading since November 2014.

• Meanwhile, total industrial production rose 0.3% in December, inching down a bit from the 0.4% gain in November. On a year-over-year basis, industrial production has risen 4.0%—a solid reading—and total capacity utilization edged up from 78.6% to 78.7%, which was the highest since January 2015.

• The regional data out last week for January manufacturing activity from the New York and Philadelphia Federal Reserve Banks provided mixed news. In the Empire State Manufacturing Survey, respondents noted the slowest pace of growth since May 2017, with new orders, shipments, and employment softening. In contrast, the Philadelphia Federal Reserve report reflected activity that rebounded in January from weaknesses in December. The good news is that manufacturers in both districts felt positive in their outlook for the next six months.

• Those surveys also noted stabilizing raw material costs. This was further supported by the latest producer price index data, which declined 0.2% in December, largely on reduced energy costs. Excluding food, energy, and trade services, core inflation for goods inched up 0.1% in December.

• Over the past 12 months, producer prices for final demand goods and services have risen 2.4%, or 2.8% year-over-year with food, energy, and trade services excluded. As such, core pricing pressures remain elevated, especially relative to what firms had become accustomed to; but on the positive side, these costs appear to have stabilized for the time being.

• New data on housing starts and retail sales were not released on schedule due to the partial government shutdown. With that said, several economic anxieties led consumer sentiment sharply lower in preliminary University of Michigan survey data, down to the lowest point since October 2016.

Report provided by Chad Moutray, PhD, CBE – National Association of Manufacturers.