Chrysler workers inside the factory Bill Pugliano, Getty Images
<p>Chrysler workers inside the factory.</p>

Industrial Production Drops in December, Manufacturing Steady

Manufacturing production was down 0.1% for December, but up 0.8% compared to December 2014, and up 2% for the year.

According to a new report from the Federal Reserve, industrial production dropped 0.4% in December, quick on the heels of a 0.9% decrease in November. The industrial breakdown, though, is interesting and important, especially for manufacturers.

Manufacturing production posted a decline for the month of just 0.1%, with upward revisions for both September and October. With the calendar year wrapped up, manufacturing production increased 2% in 2015 against 2014, and was up 0.8% in December 2015 compared to December 2014.

“The December industrial production report should allay fears that the manufacturing sector is in recession,” MAPI Foundation chief economist Daniel J. Meckstroth said, noting that manufacturing production expanded at a 3.2% annual rate in the third quarter and a 0.5% annual rate in the fourth quarter. “Yes, there is a slowdown, but manufacturing is not in a recession.”

Manufacturing production increased in 10 of the 20 major industries, including residential and commercial construction, and industrial construction. “An important part of the gains and losses were not concentrated in any one industry,” Meckstroth said.

A steep drop in energy production adversely affected machinery, basic chemicals and metals, among other industries, Meckstroth said, “but what temporarily depressed the fourth quarter is an inventory correction. We believe that inventories are sorting out so the mild winter weather and solid consumer spending in the overall economy will demand moderate growth in manufacturing production in 2016.”

Automotive is, however, in a technical recession — seven straight months of inflation-adjusted decreases now in parts and vehicles combined — as noted by analyst Alan Tonelson, who covers manufacturing on his RealityChek blog. That is likely a course corrected after an adversely strong May when it jumped about 11%.

“Automotive is so volatile overall that it does slip in and out,” Tonelson said. “It’s still rather compelling because when we look at the overall economy, when real GDP drops for two straight quarters, that’s a recession to most people.

The sector also experienced a technical recession thanks to declines in eight straight months from July 2014 to February 2015. “There you also had something a little anomalous happening because you had that harsh winter, and you had a drop-off in monthly automotive production from January to February, and the February production level was the lowest in quite a while,” Tonelson said. “So perhaps the weather affected that one, but there’s clearly no weather effect this time.”

With some of the first 2016 reports quickly approaching, there could be some eyebrow-raising impressive year-over-year comparisons.

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