Industrial production expanded

March 15, 2024

February industrial production rose 0.1%, a touch better than the consensus expectation of no change. January production posted a sharp downward revision to -0.5% from the originally reported -0.1%.

February's report is actually better than the headline suggests. Manufacturing output surged 0.8%, the largest increase in about a year. However, weather again was a factor influencing the data as it did with February retail sales. A sharp drop in utility output because of the warmer winter parried some of the strength in manufacturing.

February was the warmest on record for Chicago alone. Nationwide, electric and gas utility output plunged 7.5%, the largest drop in nearly 20 years. Talking about records, February’s drop in utility output is the second biggest decline in the history of the data which stretches back all the way to 1939.

A 1.8% rise in motor vehicle and parts output was the primary contributor to the strength in manufacturing production. New vehicle sales rebounded to near a 16.0 million annual rate from 14.9 million in January. Machinery output rose 1.7% while fabricated metal products increased 0.3%. The CHIPS Act and generative AI continue to fuel demand for computer and electronic products, which increased 0.7%. On an annual basis, computer and electronics output is up near 7%, among the best performing categories along with aerospace production, up 7.4%. Airlines continue to see strong demand for travel.

Some notable bounce-backs occurred for industries associated with the housing sector. Furniture production rose 1.8%, the first increase after five straight months of declines. Output of wood products increased 2.4%. New home construction is picking up as mortgage rates are hovering near 7% versus over 8% at the end of last year. Borrowing rates are projected to move lower in the second half of this year.