The overall Industrial Production (IP) index was flat both month on month and year on year in January. The index for manufacturing output rose 0.2% in January. However, the production of motor vehicles and parts decreased 2.9% while other manufacturing production manufacturing increased by 0.5%. The output of construction supplies advanced 0.9%, while the index for non-energy business supplies gained 0.3%.
Durables edged down slightly mostly as a function of slower automotive production. Capacity utilization for manufacturing moved up 0.1 point in January to 75.1% and was up 0.4 points from January 2016. Still the January operating rate was 3.3 percentage points below its long term average. Mining output surged 2.8% in January, rebounding from a December lull. The mining index in January was 0.4 points higher than its year-earlier level.
Figure 1 shows the three month moving average of the US IP index from 2010 to present on a two axis chart with the IP index in red on the left hand axis and the year on year change in percentage terms on the right hand axis. The IP index recovered nicely after the recession ended, rising for 65 consecutive months before stumbling and falling in the period between June 2015 and May 2016. The IP began a recovery in June which lasted just two months before drifting sideways. The good news is that there have been two months in a row of advances in the IP index. Most of the market groups recorded increases. The index for utilities fell 5.7%, mostly because of unseasonably warm weather which reduced the demand for heating. Of concern is the large decline for consumer durables of 2.8% which is largely attributed to a decline of demand for motor vehicles.
At Gerdau, we monitor the US IP index since it gives a broad overview of the health the of the US economy. Drilling down into the sub-indexes of manufacturing, energy, mining and construction offers a current view of “where we are at” relative to demand for steel long products along with a window into the likely trends going forward.