Industrial Production Unexpectedly Declines

Once again the "soft" data like ISM and the Fed regional reports are nothing but baloney. GDP estimates will tank.

Industrial production for January declined 0.1% despite a surge in weather-related utilities. The Econoday consensus was a 0.2% rise. The decline is worse than it looks because the Fed revised December from 0.9% to 0.4%.

Weakness in industrial production underscores what has been the Federal Reserve's very modest assessment of the factory sector. Industrial production fell 0.1 percent in January with December revised 5 tenths lower to a 0.4 percent gain which is offset in part by a 4 tenths upward revision to November which is now at plus 0.3 percent. The manufacturing component, that is the Federal Reserve's own measurement of goods volumes, is unchanged with both December and November revised 1 tenth lower to unchanged and up 0.2 percent.

The report's two smaller components are mixed. Utility production rose 0.6 percent in the month on top of December's 4.6 percent weather-related surge with the year-on-year rate at a very strong 10.8 percent. Mining, which had been strong, fell 1.0 percent in January with December revised sharply lower to minus 0.4 percent. On a yearly comparison, mining production is still very strong at an 8.8 percent gain.

But manufacturing production makes up the great bulk of this report and is up only 1.8 percent on the year in what is a far cry from the surging strength evident in small-sample regional reports such as this morning's Philly Fed and Empire State. This report, again in contrast to the anecdotal data, is not consistent with building inflation pressures, evident in capacity utilization which is down 2 tenths to 77.5 percent and a 1/2 point under expectations. For the FOMC, today's results do not turn up pressure for more hawkish policy.

Bogus Soft Reports

As I have been saying for at least a year, these soft reports are bogus. I stopped following most of them.

Let's dive into the Fed's Industrial Production and Capacity Utilization report for additional details.

Industrial production edged down 0.1 percent in January following four consecutive monthly increases. Manufacturing production was unchanged in January. Mining output fell 1.0 percent, with all of its major component industries recording declines, while the index for utilities moved up 0.6 percent. At 107.2 percent of its 2012 average, total industrial production was 3.7 percent higher in January than it was a year earlier. Capacity utilization for the industrial sector fell 0.2 percentage point in January to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2017) average.


Utilities constitute 10.5% of the index. In December, utilities were up 4.6%, the index was up 0.4%. Subtract utilities and industrial production was down about 0.1% in December.

GDP Impact

These numbers will subtract from revised fourth-quarter GDP and first-quarter GDP estimates.

Mike "Mish" Shedlock

Comments (3)
No. 1-3

There's lies, damned lies and statistics. What I wanna know is, will Powell be a Dove a Hawk or a Pussyfooter.


He will become a dove when stocks start to crash again imo. The other day when stocks dropped over a 1000 points, what that is telling me is that the Fed can not increase interest rates and slowly taper trillions of dollars on their balance sheet at the same time. Today the 30 year


bond yield is down about 3 points while the yield on the 2 year note is up a bit so the yield curve is starting to flatten again. Equity markets are watching all this and at some point will show the Fed you can’t drain liquidity and get away with it.