December's production decreased by a more-than-anticipated 0.4% (a decline of 0.2% was expected), following a 0.9% fall in November. This means that production fell in eighth of the 12 months of 2015. At 76.5% in December, capacity utilisation was significantly lower than in November, is the lowest since July 2013, and is still signalling very little in the way of inflationary pressure.
With regard to production by sector, weakness was relatively broad, with the exception of business equipment (0.1%). Production from utilities, mining, consumer goods, and materials was notably weaker, in part because of the warmer weather in the month (see table below). If utilities were excluded, production would still have been 0.2% lower in the month.
December's industrial production weakness was a little more than just the weakness in the production of energy. If energy production were excluded from the total, production would have been unchanged in the month. It would also be 0.6% higher than a year ago, relative to the current aggregate total of just 1.8% lower. The continued decline in energy prices—very much one of today's highlights—suggests that global production and manufacturing is still struggling to find a bottom. Inventories among the manufacturers are still at very high levels relative to sales. The Chinese investment demand-drive boom is over, and we are still waiting for the consumption-driven boom to really ignite. Meanwhile, it seems that commodity producers are still slow to reduce supply. Bottom line, this month's weakness reflects the high levels of inventories, strong dollar, excess supply of commodities, and ongoing weakness in global demand.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.