Industrial production barely met expectations for November.

December 15, 2023

November industrial production rose 0.2%, about as expected. The consensus expectation was +0.3%. October industrial production was revised lower to -0.9% from the previously reported -0.6%.

A 7.1% rebound in motor vehicle and parts production helped lift manufacturing output, which rose 0.3%. That follows several months of contraction in motor vehicle output due to the UAW strike. While the ramp-up to full production schedules is expected to take several months and should be a positive influence for output, there may be other constraining factors for the auto sector in 2024.

Sales of electric vehicles are not meeting targets. Several of the Detroit Big Three have announced 1,300 layoffs along with reduced schedules for electric pickup trucks. One EV pickup was supposed to have started at $42,000. When it went on sale last year, however, the starting price jumped to $52,000, shutting out many potential buyers. Price still matters; given the inflation shock many have endured over the last few years, it’s no wonder they still hold pessimistic views about the economy. Furthermore, tighter credit conditions and rising delinquencies for motor vehicle loans are expected to crimp demand for new vehicle purchases in the new year.

One area that continues to outperform is output of high-tech industries, up 1.7% in the tenth consecutive month of gains. This grouping includes production of semiconductor chips, computer equipment and communications. Although overall industrial production is down 0.4% on an annualized basis for November, semiconductor chip output is sizzling, up 15.3%. The two series tend to move together over time, given their correlation of 0.65 from 1973 to 2019. In 2023, the two paths have diverged. The CHIPS Act has incentivized producers, propelling chip production to an all-time high.

Output for oil and gas well drilling fell 4% in November and down 10.6% on an annualized basis. While the transition to green energy will take some time, the more immediate impact on the drilling sector is the weakness in crude oil prices. West Texas Intermediate crude prices recently fell below $70 per barrel, reducing cash flow to producers that would support future drilling activity.

December S&P Global Purchasing Managers Index (PMI) was also reported today at 48.2, below the consensus expectation of 49.5 and weaker than November’s 49.4. The below-50 readings are an indication that forward-looking measures of industrial activity continue to point to softness, which is evident from the negative reading in industrial production from a year ago.