The Economy

Industrial Production Falls 0.4% in November

The larger-than-expected decline, which followed a 0.1% gain in October, suggests the sector "is still just treading water."
Matthew HellerDecember 14, 2016
Industrial Production Falls 0.4% in November

U.S. industrial production eased off more than expected last month, posting its largest decline since March, though the mining sector showed signs of stabilizing.

The Federal Reserve said the measure of everything made by factories, mines and utilities declined 0.4% from a month earlier. Economists surveyed by The Wall Street Journal expected a 0.2% drop.

October production was revised up to a 0.1% gain from a previously reported flat reading. Output has struggled since recording consecutive gains of 0.5% and 0.3% in June and July, respectively.

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“The sector is still just treading water,” Stephen Stanley, chief economist at Amherst Securities, said in a note to clients.

The November decline reflected a 4.4% drop in output by utilities as unseasonably warm weather reduced demand for heating. Manufacturing output, the largest component of industrial production, slipped 0.1% after gains the previous two months, with a drop in production of long-lasting durable goods, particularly motor vehicles and parts, fueling the decline.

But as the WSJ reports, the mining sector, which has been hurt by low oil prices over the past two years, appeared to stabilize further. Mining output rose 1.1% in November after climbing 1.9% in October, the first back-to-back gains since the summer of 2015.

“Through the volatility, the trend in manufacturing is probably at least modestly positive and the oil-drilling-led plunge in mining seems to have ended,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said in a note to clients.

Industrial production has fallen 0.6% over the past 12 months due to declines in utility and mining output, while capacity use, a measure of slack in the economy, is far below the historical average of 80%, though it has climbed 0.4 percentage points over the past year.

In November, capacity use fell four-tenths of a percentage point to 75%. Economists expected capacity use of 75.1%.