US December Industrial Production: A mixed report - Wells Fargo

According to analysts from Wells Fargo, the 0.9% increase in industrial production for December handily exceeded expectations, but the strength was largely a function of a weather-related utilities surge.

Key Quotes: 

“The 0.9 percent pick-up in industrial production was largely due to a weather-related payback in utilities production. Temperatures in December were actually a bit above average, but that followed a November which was a particularly warm month (the sixth warmest on record). The result was a 5.6 percent surge in utilities output for December following a 3.1 percent decline in the prior month.”

“More than three quarters of all output is concentrated in the manufacturing sector. This heavyweight category came in a bit below expectations, adding just 0.1 percent in the final month of 2017.”

“The fact that the production component of the ISM index has been trending higher in recent months should indicate bigger gains for actual manufacturing output.”

“Capacity utilization has been slow to return to pre-recession highs in this cycle. The peak for the current expansion was in 2014 when there was very little spare capacity in the mining sector. Broadly, capacity use is now at 77.9 percent, although both mining and utilities are north of 80 percent. Manufacturing was unchanged at 76.4 percent and suggests little inflation pressure from the manufacturing sector—at least for now.”