US industrial output up 0.1% in December, slightly above expectations; up 1.0% over past 12 months; Treasury yields rise; rate-cut expectations soften; capacity utilisation rate steady at 78.6%, below long-term average.
The Federal Reserve’s industrial production (IP) index measures real output from manufacturing, mining, electricity and gas company facilities located in the United States. These sectors are thought to be sensitive to consumer demand and so some leading indicators of GDP use industrial production figures as a component. US production collapsed through March and April of 2020 before recovering the ground lost over the fifteen months to July 2021.
According to the Federal Reserve, US industrial production expanded by 0.1% on a seasonally adjusted basis in December. The rise was slightly above the expected flat result as well as November’s unchanged figure after it was revised down from +0.2%. On an annual basis the growth accelerated from November’s revised figure of -0.6% to 1.0%.
The figures were released on the same day as the latest retail sales report and US Treasury yields rose, especially at the short end of the curve. By the close of business, the 2-year Treasury yield had jumped 13bps to 4.35%, the 10-year yield had added 4bps to 4.10% while the 30-year yield finished 1bp lower at 4.31%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened while still factoring in several cuts. At the close of business, contracts implied the effective federal funds rate would average 5.32% in February, 1bp less than the current spot rate, 5.275% in March and 5.185% in April. January 2025 contracts implied 3.92%, 141bps less than the current rate.
The same report includes capacity utilisation figures which are generally accepted as an indicator of future investment expenditure and/or inflationary pressures. Capacity usage hit a high for the last business cycle in early 2019 before it began a downtrend which ended with April 2020’s multi-decade low of 64.2%. December’s reading remained unchanged from November’s downwardly-revised figure of 78.6%, below the long-term average of 80.1%.
While the US utilisation rate’s correlation with the US jobless rate is solid, it is not as high as the comparable correlation in Australia.
