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What Drove Industrial Production Lower in January 2018?

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Dec. 4 2020, Updated 10:53 a.m. ET

January industrial production down 0.1%

The Federal Reserve released its industrial production report for December on February 15. The report indicated that industrial production fell 0.1% in January as compared to a 0.9% increase in December. The decline was the first decline in five months, but the economic metric has increased by 3.6% as compared to the same period a year ago.

The Industrial Production Index tracks the manufacturing (XLI), gas and utilities (XLU), mining (XME), and electric sectors. Changes in the levels of industrial production help gauge future changes in economic demand, as companies plan capacity months in advance. Thus, industrial production is a reliable forward indicator.

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A closer look at the February report

The 0.1% decline in industrial production shouldn’t be considered a signal of a slowdown, especially after the multiple months of growth in the last 12 months. Recent economic data reports indicated increasing worker wages and consumer confidence, which could mean higher aggregate demand. Higher demand is a positive sign for the economy and could lead to higher industrial production levels.

Which sectors dragged production lower in January?

As per the report from the Federal Reserve, the mining sector (PICK) production dropped 1% in January for the second consecutive month. The other two major industry groups, manufacturing and utilities (IDU), posted growth of 0% and 0.6% in the previous month. The outlook for industrial production remains positive, as the impact of tax cuts, which began in January, could further boost demand. In the next part of this series, we’ll analyze changes in capacity utilization for US industries in January.

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