MAPI: January Production Down, But Year-Long Outlook Still Good
Analysis from Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), on the latest industrial production numbers:
"The Federal Reserve reports that industrial production fell 0.3 percent in January, following 0.3 percent growth in December. The abnormally cold weather caused a 4.1 percent surge in utility production last month. All the decline in January’s industrial production is attributable to a 0.8 percent reduction in manufacturing production and a 0.9 percent decline in mining activity.
"Another negative development in the report is that manufacturing growth from October to December was revised down, tempering the impression that manufacturing was booming in the fourth quarter of 2013. Manufacturing was growing faster than the general economy, but not by much.
"January’s decline in manufacturing activity is attributable to an inventory correction and the weather. Sixteen of the 20 major manufacturing industries experienced a decline in production in January. Motor vehicles and parts production fell a particularly large 5 percent and wood products production dropped 2.6 percent. January’s decline in industrial production seems at odds with the month’s jobs report that showed that manufacturing employment increased 0.2 percent, but aggregate hours did decline thanks to a drop in average hours worked.
"A correction was bound to happen, and the fundamental drivers of industrial activity still remain positive. Consumer after-tax income will accelerate this year, there is pent-up demand for durable goods and business investment, and government spending will not be a drag on growth. Manufacturing industrial production increased 2.3 percent last year. MAPI predicts that manufacturing activity will increase 3.2 percent in 2014 and 4.0 percent in 2015."
Read more about the industrial production numbers, which showed contraction in January.