The Federal Reserve reported that total industrial production declined 0.1% in January from December’s levels, weighed down by a 1% decline in mining output in the economy. This marks the first monthly decline in five months, as industry output has enjoyed a significant resurgence over the past year. Even with the weakness in January, total production sits 3.7% higher than at this point last year.
Manufacturing industrial production, which strips out mining and utilities from the total, remained essentially unchanged during the month as year-over year growth slipped below 2%. While total industrial production has been in a generally accelerating trend, manufacturing activity has largely stalled since the end of the 3rd quarter.
Consumer goods and business equipment continue to lead the charge in the manufacturing sector, with computer equipment, motor vehicles and primary metals all experiencing growth during the month. These gains were offset by softness in food and beverage production, plastics, and construction.
Behind the Numbers:
This month’s results continue a general trend of disappointment in domestic manufacturing output. Much of the “soft” survey data surrounding manufacturing (Institute of Supply Management index, regional manufacturing indices) remains quite positive in the economy. Moreover, the fundamentals for strong domestic manufacturing activity are still present, with healthy consumer and business demand and a weak dollar. As a result, the recent manufacturing results have been puzzling, but the outlook remains fairly bright.
From a freight perspective, domestic manufacturing is one of the primary sources for the flow of goods through the US economy. Because of this, the recent underperformance in manufacturing production does dampen the outlook somewhat. However, import volumes have been strong and port data has been solid, suggesting that U.S. businesses and consumers are simply relying on foreign rather than domestic manufacturing to satisfy demand, and overall freight remains healthy. As the effects of the weak dollar begin to take hold on the economy, there will likely be a shift towards domestic manufacturing going forward.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.