2013 Gives U.S. Manufacturers Best Quarter in Years

Through 2013, focus has been on the American consumer and the effect consumer spending — or lack thereof — would have on the American economic recovery. But there is increasing evidence that the manufacturing sector is helping the economic recovery find its legs, as well.

Throughout the final three months of the year, industrial output increased at 6.8 percent annual rate, making the quarter the strongest since the April through June period of 2010. Even though November’s improvement in U.S.-based industrial production was not replicated as strongly in December, the month’s gain represented the fifth straight month of strengthening industrial production.

Output at at factories, mines, and utilities increased 0.3 percent following November’s upwardly revised 1 percent gain, the Federal Reserve said Friday. While manufacturing momentum was lost in the last month of the year — much as it was in the labor market — the 0.3 percent gain was spread across the multifaceted American manufacturing sector. It also matched the average estimate of economists polled by Bloomberg.

Industrial production can be analyzed with respect to two criteria: major market groups and major industry groups.

The market groups category is divided into several subdivisions — including consumer goods, business equipment, and construction — which give analysts a better picture on how well each of those specific areas of the economy are performing. In December, production of consumer goods rose 0.5 percent, its fifth consecutive monthly increase, putting the index 3.6 percent higher than the level recorded in December 2012.

However, the output of business equipment declined 0.5 percent, which followed a 0.3 percent decline in November. The decrease shows evidence of slackening demand for new equipment from U.S. companies, which in turn suggests businesses are exhibiting caution regarding major purchases. Still, the index for business equipment did rise at an annual rate of 3.7 percent in the fourth quarter, and all of its major components registered gains.

Construction numbers were still strong, buoyed by the relatively steady pace of new home construction that has characterized the recent housing market recovery. The production of construction supplies index advanced 0.4 percent in December, the seventh consecutive monthly gain, which put the index 4.4 percent above its year-earlier level.

As for industrial production, the Federal Reserve’s index is broken down into three major industry groups: manufacturing, mining, and utilities. The index and all of its components are pegged to a 2007 level of 100. The most-watched segment is manufacturing, which rose 0.4 percent on the month to 97.8. While that was also the fifth consecutive monthly increase, the index remained 3.1 percent below its December 2007 peak. Gains in the production of primary metals, electrical equipment, appliances, and automobiles led the sector.

Within manufacturing, the production of durable consumer goods — manufactured products expected to last three years or longer — rose 0.1 percent in December, an increase led by solid growth in the indexes for automotive products, home electronics, and appliances. Meanwhile, the output of non-durable materials rose 0.9 percent last month.

The Institute for Supply Management’s purchasing managers’ index for the manufacturing sector recorded a reading of 57 in December, a figure slightly below November but still indicating an expansion in manufacturing activity. Furthermore, companies in the manufacturing sector have been expanding their payrolls; employers added 9,000 jobs in December despite the broader weak employment gains.

Capacity utilization, a measure of slackness in the economy, rose 0.1 percentage points to a 79.2 percent pace, according to the Federal Reserve’s report.

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