Decline in Mining Activity Keeps Industrial Production Down



Industrial production fell 0.4% in December

The US IPI (Industrial Production Index) fell 0.4% month-over-month in December following the downwardly revised 0.9% decline in November 2015. With a decline in industrial production, the Industrial Select Sector SPDR ETF (XLI) fell 9.5% over the month prior to January 15.

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Utilities fall 2.0% in December

The decline in utilities by 2.0% in December was the main contributor towards the decline in industrial production. The demand for utilities fell as continued warmer temperatures reduced demand for heating. Also, mining and manufacturing activity continued to decline, down by 0.8% and 0.1%, respectively, in December.

As a result, stocks of CONSOL Energy (CNX), Alcoa (AA), Worthington Industries (WOR), Steel Dynamics (STLD), and Reliance Steel & Aluminum (RS) fell by 25.2%, 25.3%, 2.2%, 5.2%, and 7.2%, respectively, over the month prior to January 15.

Industrial production fell 1.8% year-over-year in December

On a year-over-year basis, industrial production fell 1.8% in December, compared with a 1.2% decline in November 2015. Reduction in mining activities by 11.2% and utilities by 6.9% contributed significantly to the decline in industrial production over the 12 months prior to December.

Materials fell 3.1% in December from a year prior

Among the major market groups, the indexes for final products declined by 1.2% due to the decrease in business equipment by 0.8% in December on an annual basis. The largest decrease was recorded in the materials group, which was down 3.1% on a yearly basis and 0.3% on a monthly basis in December.

In December, capacity utilization trended lower at 76.5%, clearly indicating that production is struggling to regain strength in the economy. With the low capacity utilization, potential profits may take a hit.

While industrial production continues to struggle with a decline in demand, the stronger dollar is further impacting the demand for goods in the international market. Also, the volatility surrounding world economies is keeping business sentiment lower in the economy.

You may also be interested in reading Eurozone Industrial Production Turned Negative in November. For the latest news on the economic front, refer to Market Realist’s Global ETF Analysis page.


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