January 2025 Production Report: A Mixed Bag for Manufacturers

As we step into February, let's take a closer look at the January 2025 production report. The month brought a mix of gains and declines across various industries, with some sectors performing exceptionally well while others struggled. Overall, industrial production (IP) grew by a modest 0.5% compared to December 2024 and a more robust 2.0% compared to January 2024.

Manufacturing output slumped by 0.1% in January, with both durable and nondurable goods production underperforming. The decline was driven by a 5.2% decrease in motor vehicles and parts, while computers and electronics production helped offset some of that drop. Aerospace transportation production reached the highest level since August 2024, thanks to the resumption of work at a major aerospace producer in November. Food manufacturing was lower, contributing to higher food inflation readings in January. Furniture manufacturing remains near the lows last seen in the early 1980s, as higher-for-longer mortgage rates have frozen the housing market.

Mining production fell by 1.2% in January but was still 3.4% higher than a year ago. Oil and gas extraction, along with coal mining, fell, while metal ore mining gained. Drilling oil and gas wells fell to the lowest level since September 2021, and natural gas liquid extraction fell in the month but has been growing for decades. The ban on liquified natural gas exports made by the former administration was lifted by the new administration on Inauguration Day.

Utilities production jumped by 7.2% in January, the largest increase since March 2017. The surge was driven by below-average temperatures in much of the South and Midwest, as well as record-breaking cold and snow in the Gulf Coast. Energy needs by businesses are increasing, especially as businesses pivot to adopt generative AI.

Capacity utilization rates in manufacturing, mining, and utilities sectors changed as follows:

* Manufacturing: Decreased by 0.1 percentage point to 76.3%, 1.9 percentage points below its long-run average (1972-2024).
* Mining: Decreased by 1.1 percentage points to 89.5%, 3.0 percentage points above its long-run average (1972-2024).
* Utilities: Increased by 4.9 percentage points to 75.7%, well below its long-run average (1972-2024).

The changes in capacity utilization rates across these sectors have implications for future production and economic growth. A decline in manufacturing capacity utilization may suggest a slowdown in production growth, which could impact consumer spending and business investment. A decrease in mining capacity utilization may indicate a slowdown in energy production, which could impact energy prices and economic growth. An increase in utilities capacity utilization may suggest higher energy demand, which could impact energy prices and economic growth.

In conclusion, the January 2025 production report paints a mixed picture for manufacturers, with some sectors performing well while others struggle. As we move forward, investors and businesses should closely monitor capacity utilization rates and production trends to assess their impact on future production and economic growth.