Industrial Output Rebounds at Year's End

January 19, 2012
Industrial Output Rebounds at Year's End

By Ilya Leybovich

After a brief period of contraction, U.S. industrial production rebounded strongly at the end of the year, largely due to increases in manufacturing output, which posted its highest gains in a year.

Industrial production in the United States increased 0.4 percent in December, following a 0.3 percent decline in November, according to the U.S. Federal Reserve on Wednesday. For the fourth quarter of 2011 as a whole, industrial output rose at a 3.1 percent annual rate, marking the 10th consecutive quarter of growth and ending the year on a positive note for the industrial sector.

The Fed's latest industry report indicates that much of the December production gain resulted from strong performance in manufacturing production, which constitutes the largest portion of overall industrial output. Manufacturing production increased 0.9 percent last month, representing the largest single-month increase since December 2010. This came on the heels of a 0.4 percent decline in November.

"The report indicated the production side of the economy ended the year on a firmer footing," Reuters reports. "Manufacturing has been one of the main drivers of growth in the U.S. economy since the end of the 2007-09 recession. The economy is expected to have expanded at an annual pace of at least 3 percent in the fourth quarter."

Although last month's manufacturing output was 3.7 percent above the total for December 2010, manufacturing activity remains roughly 8 percent below its pre-recession peak reached in July 2007.

Mining production also increased in December, climbing 0.3 percent after a 0.5 percent gain in November. Meanwhile, utilities output fell 2.7 percent as unseasonably warm weather cut demand for heating.

At 95.3 percent of its 2007 average, overall industrial production in December remained 2.9 percent above the prior-year level. Industrial production is now less than 5 percent below its pre-recession peak reached in September 2007.

The largest production gains last month were in durable goods manufacturing, which rose 0.9 percent, with increases of more than 2 percent for wood products, primary metals and machinery. The only industries reporting contraction were nonmetallic mineral products, aerospace and miscellaneous transportation equipment. In Q4 2011, durable goods output grew at an annual rate of 6.3 percent. Non-durable goods production rose 0.8 percent in December, led by textile and product mills and petroleum and coal products.

"Gains in consumer and business spending, combined with lean inventories, may prompt factories to continue to boost payrolls and hours, bolstering economic growth," Bloomberg News reports. "Additionally, more demand from emerging markets may help shield American industry from a slowdown in exports to Europe as the region's financial crisis and a weaker euro threaten to restrain sales."

Capacity utilization, a measure of how much of the industrial sector's production capabilities are being used, grew to 78.1 percent in December, up from 77.8 percent in November and 1.2 percent above the utilization rate for December 2010.

The upswing in industrial production, particularly in the manufacturing industry, has had a positive effect on the broader economy, and the trend is expected to continue for the near-term future.

"MAPI [the Manufacturers' Alliance for Productivity and Innovation] believes that the U.S. economy will grow at a modest 2.1 percent pace in 2012 and manufacturing production will increase at a faster 3.4 percent growth rate," Daniel J. Meckstroth, chief economist for MAPI, wrote in an analysis of the Fed report. "The superior growth in manufacturing comes from pent up demand for motor vehicles, the need to upgrade business equipment and more investment in energy and mineral exploration."

While the outlook for industrial production remains strong, numerous concerns remain, including fears that an increase in demand for U.S. goods in emerging markets may not be enough to offset expected losses from the Eurozone's deteriorating financial situation.

"Factories benefited in the second half of 2011 from a number of trends. Consumers bought more cars. Businesses boosted spending on industrial machinery and computers. And companies are restocking their warehouses again after cutting inventories over the summer," the Associated Press explains. "Still, Europe's debt crisis has already started to dampen demand for American exports. That could slow manufacturing and threaten growth in 2012."

Source: http://news.thomasnet.com/IMT/archives/2012/01/industrial-output-rebounds-at-years-end.html