Manufacturing production grew 0.2 percent in February, extending the 0.5 percent gain seen in January. As such, output in the sector has begun 2016 on a somewhat stronger note than it ended 2015. To be clear, manufacturing activity remains weaker than we would prefer, particularly given the difficulties in growing export demand and with soft commodity prices. Still, manufacturing output has increased 1.8 percent over the past 12 months, up from 0.5 percent in December and 1.2 percent in January. With that said, production growth slowed considerably last year, with the year-over-year rate of manufacturing output down from 4.3 percent in January 2015. Capacity utilization for manufacturers was unchanged at 76.1 percent in February.
Looking more closely at the February data, the sector-by-sector breakdown was mixed, particularly with the growth rate easing from January’s pace. Durable goods manufacturing production increased 0.4 percent in February, but output from nondurable goods firms was off by 0.1 percent.
The largest gains were in apparel and leather (up 3.0 percent), petroleum and coal products (up 2.5 percent), miscellaneous durable goods (up 0.9 percent), primary metals (up 0.8 percent), computer and electronic products (up 0.7 percent), electrical equipment and appliances (up 0.7 percent) and plastics and rubber products (up 0.6 percent). In contrast, sectors with declining production in February included textile and product mills (down 1.3 percent), wood products (down 1.2 percent), food, beverage and tobacco products (down 0.7 percent), chemicals (down 0.3 percent), fabricated metal products (down 0.1 percent) and motor vehicles and parts (down 0.1 percent).
On a more positive note, the manufacturing sectors with the greatest year-over-year growth were: motor vehicles and parts (up 9.1 percent), electrical equipment and appliances (up 7.4 percent), miscellaneous durable goods (up 5.8 percent), wood products (up 3.9 percent) and furniture and related products (up 3.6 percent).
Meanwhile, total industrial production declined by 0.5 percent in February, falling for the fourth time in the past five months. The decrease stemmed from weaker production for utilities (down 4.0 percent) and mining (down 1.4 percent). Warmer weather and reduced energy prices have impacted these figures. Capacity utilization dropped from 77.1 percent to 76.7 percent. Over the past 12 months, industrial production has fallen by 1.0 percent, pulled lower by 9.9 percent and 9.3 percent year-over-year declines in mining and utilities, respectively.
Overall, the bottom line is that manufacturing activity continues to be very weak, even with progress over the past two months, and the industrial production data will likely give the Federal Reserve some pause as participants look at whether or not to raise interest rates. The expectation is that the Federal Open Market Committee will wait until its June meeting to hike rates again, but for that to happen, FOMC participants will be looking for broader improvements in the economy moving forward, including for manufacturing. For their part, more than 70 percent of manufacturers responding to our most recent outlook survey wanted the Federal Reserve to wait for progress in the broader economy before they act again.
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