A Closer Look At US Industrial Production Index of December 2021

A Closer Look At US Industrial Production Index of December 2021

By Megha

The US Industrial Production Index in December showed that the factory output in the country decreased after a gain of a couple of months. The US Industrial Production Index continues to be restricted by the supply-chain issues and very warm weather that has been a burden on utility energy. The US Industrial Production Index includes utility output, mining, and factory. These fell at an adjusted figure of 0.1% in the previous month compared to November. The figures for the US Industrial Production Index were released by the Federal Reserve. The experts had forecasted that the index would increase by 0.2% for the month. In November, the US Industrial Production Index increased upward to a revised figure of 0.7%. The decrease in the previous month is the sole contraction in the industrial output since the past few months.


The last drop was because of Hurricane Ida, which weighed in on the production. The factory activity has been down for months because of supply chain issues. There has also been a shortage of components and raw materials, which has resulted in an increase in costs. The present surveys completed by good producers show that there are signs that the bottlenecks have reduced a little at the end of the year. But experts have said that the normalcy in the supply chains is still many months away. The manufacturing output is the largest component of industrial production. It decreased by 0.3% in the previous month compared with November. The production of motor vehicles and parts declined by 1.3%. This showed that the component and supply shortages are still present in the system. The mining output increased by 2%. According to the Federal Reserve, this is mainly due to the increases in the gas and oil sector.


The output of utilities declined by 1.5% because the demand for heating declined due to the warmer-than-usual weather. Every year, the industrial production in the previous month increased by 3.7%. The output was 0.6% above the mark achieved a couple of years ago before the pandemic. The utilization of the capacity shows how much industries are producing right now compared with their manufacturing capacities. It declined to 76.5%, a decrease of 0.1 percentage points. The experts had forecasted that it would grow by 77%. The increase in the US factory output also declined majorly in the previous month. This showed that a sudden increase in coronavirus infections increased the ongoing struggles of the manufacturers with labor and material shortages. The decline of 0.3% happened after a revised gain of 0.6% in November.


The total industrial production decreased by 0.1% in the previous month. This figure includes the utility and mining output. The median estimate in a survey of experts called for a monthly increase of 0.3% in the factory output and a growth of 0.2% in the total industrial production. Factory production grew by 3.5% throughout December, while the total industrial output increased by 3.7%. The levels underline the lengthy and slow path to getting the mismatch of demand and supply in the goods sector back to normal. The omicron variant of the coronavirus is only the latest barrier. This is because the factory floor managers are navigating the repercussions of the spike in coronavirus on the employees and the production schedule. The various challenges related to the several material shortages and the transportation networks also restrict the efforts to increase the supply.


US Industrial Production Index Shows that Manufacturing Will Get a Boost


Even so, peeking into the future, sustained growth in business and consumer demand, high order backlogs, and lean inventories will give a tailwind to manufacturing this year. The US Industrial Production Index showed that the utilization of resources to their full capacity at the factories declined in December. This was the first decrease in a couple of months. The total industrial capacity also increased. The decrease in manufacturing output in the previous year showed a decline of 1.3% in the production of motor vehicles. The automakers struggled to keep up with the demand in the previous year as the semiconductor shortage issues blocked the assembly lines. Plastics, aerospace equipment, and fabricated metals also declined a little.


Many recent factory surveys have said that there has been some relief in the stressed supply networks. There have been instances of supplier delivery times improving. The Institute for Supply Management data showed that the gauge of manufacturing delivery times has decreased to its lowest mark in twelve months. Other data represented by the US Industrial Production Index showed that the impact of the fragile supply chains had increased the prices. According to the Labor Department, the import prices increased by 6.8% in the previous month compared to twelve months ago. According to the Federal Reserve, a decrease in the US manufacturing sector in the previous month, including the heavily impacted auto sector, caused the overall industrial output to decline.


Amid the present shortage of vital computer chips that have hindered auto manufacturing, the motor parts and vehicles declined by 1.3% in the previous month. They were more than five percent lower than the mark achieved a year before. The decrease ended a streak of a couple of months and gave a sign that the sector's problems are still not over. The industrial output has grown more than 3.6% in the previous month despite the downcast finish to the year. The growing cost of oil has helped boost the mining sector by a couple of percentage points compared to November. The output was more than ten percent higher than a couple of years ago. 


Bostjancic said, "solid demand will keep industrial production growing strongly in 2022. Industrial supply chains will continue to face a difficult operating environment this year; the latest surge in (Covid-19) cases already looks to be exacerbating labor problems." Stephen Stanley, the chief economist at Amherst Pierpont Securities, said, "I suspect that some industries may have been forced to slow down activity in the second half of the month due to omicron-driven absences. In any case, manufacturers will look to get back up to full speed as soon as they can in light of robust demand for goods from consumers and businesses."


The US Industrial Production Index Grew in November too


The US Industrial Production Index grew by 0.5% in November. This was because the output in the country's factories reached the highest mark since January of nearly three years ago. The increase in November was after an even bigger increase of 1.7% in October. This was a rebound from a decrease of 1% in September. The statistics were revealed by the Federal Reserve. Many supply chain issues affected the manufacturers in September. This decreased the output at the US auto plants. This is in addition to the adverse effects of the refineries' shutdowns on the Gulf Coast due to Hurricane Ida. In November, the manufacturing output increased by 0.7%. This was led by a reversal in the auto sector. The output increased by 2.2% in the segment after an increase of 10.1% in October.


Even with the increases, the production from auto plants is nearly six percent below the mark of a year earlier. This is because the manufacturers continue to deal with several issues in the supply chain, particularly a shortfall of semiconductor chips. The aerospace sector also had robust numbers, increasing 1.6%. In nondurable manufacturing, plastics, paper, and textiles production saw the profits. The Industrial Production Index covers utilities, mining, and manufacturing. For November, the mining sector increased by 0.7% after a boost of 4.3% in October. The sector includes gas and oil production. This shows that the re-opening of production in factories along the Gulf Coast after Hurricane Ida boosted the levels. The utility production decreased by 0.8%. This marked consecutive declines in the past couple of months.



Experts say that the industrial sector will continue its struggle to meet the robust demand with the problems such as inflation affecting the economy and the supply chain. A big threat is the Omicron wave of the coronavirus that has affected the nation this month.



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