Industrial Production: Consequences From Warm Weather
My analysis on industrial production for November 2015:
"The Federal Reserve Board’s index of industrial output declined 0.6% in November," noted Don Norman, Ph.D., director of economic studies for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. "The decline was a consequence of warm weather that lowered the utilities index by 4.3% as the demand for electricity, heating oil, and natural gas that normally rises with the onset of winter instead fell. In addition, the decline in oil and natural gas prices reduced drilling activity and resulted in a 1.1% fall in the mining index.
"In contrast, the manufacturing index was unchanged in November. The index has been up and down throughout 2015 and overall it has changed very little," he added. "On a year-over-year basis, the index is a mere 1% above its November 2014 level. Within manufacturing, output of nondurable goods was up 0.5%, perhaps a reflection of increased spending by consumers in response to lower energy prices. The index for durable goods fell 0.2% in November; the decline was led by decreases in the indexes for primary metals, electrical equipment and appliances, aerospace, and motor vehicles and parts. It should be emphasized that the individual indexes for durable goods industries tend to be volatile on a month-to-month basis.
"U.S. manufacturers have faced numerous challenges in 2015, including a much stronger dollar, heightened uncertainty about slowing economic growth in China, and the dramatic fall in the prices of oil and natural gas—a decline that has proven to be a two-edged sword," Norman explained. "Given these challenges, the fact that manufacturing production is up even mildly is a positive sign."