Nearing the end of a sluggish year

December 17, 2024

Industrial production slid 0.1% in November, the third consecutive drop. October production was revised lower. Compared to a year ago, industrial production has fallen almost 1.0%. Losses were concentrated in manufacturing of nondurable goods and mining/utilities. High mortgage rates continue to sap demand for new housing construction and therefore construction supplies. This is despite the surge in demand for repairs and rebuilding following the devastation from two monster hurricanes.

Oil and gas well drilling hit its lowest level since December 2021. Investors are more focused on maximizing profits than expansion, especially given curbs to carbon fuels abroad. The break-even price on new wells can range from $55-$66 per barrel, higher than for existing wells. This is why easing regulations in the energy sector may not unleash investment.

Manufacturing output rose 0.2% on increases in furniture, appliances and vehicles and parts production. Consumer sentiment surveys point to households stocking up on durable goods before potential tariffs set in. Rebuilding after two devastating hurricanes is contributing to the increase in durable goods demand. Those shifts pushed up vehicle prices, despite some easing of credit conditions for vehicle loans. Excluding autos, manufacturing edged 0.1% lower.

A resumption of work by striking workers for a major aircraft manufacturer did not produce an increase in output of aerospace and miscellaneous transportation equipment. Activity fell 2.6%, largely due to the manufacturing of aircraft parts. Plants shut down much faster than it is possible to ramp up.

Nondurable goods manufacturing was weak and broad-based; apparel, leather, paper, plastics and rubber products as well as petroleum and coal all fell. There is a shortage of rubber, which pushed up the cost of tires in recent months. Near-record cold temperatures in the Mountain West failed to boost electricity and gas utilities, which fell 1.3%.

Business equipment bounced back 1.2% following two consecutive months of losses. Transit equipment and industrial and other equipment led gains.

Capacity utilization fell to its lowest level since April 2021 to 76.8%. Manufacturing capacity utilization came in at 76%, 2.3 percentage points below its long-run average. That should accelerate discounting, but goods prices have rebounded in recent months.

The Institute for Supply Management (ISM)'s Purchasing Managers' Index (PMI) showed an eighth consecutive month of contraction. A silver lining showed up in the new orders index returning to positive territory for the first time in eight months. Growth industries include food and beverages, computers as well as electronics and appliances.