U.S. Industrial Production and Capacity Utilization Continue to Increase in December

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Researched by Industrial Info Resources (Sugar Land, Texas)--Throughout the recession, not only did total spending decrease as companies tried to come to grips with the problems that the recession presented, but production decreased as demand lowered and the percentage of plants utilized decreased. These were all logical results of a down economy and consumer concerns over job losses and the tightening of credit across the board. However, both the total industrial production in the U.S. and the percentage of factories actually in use has slowly been recovering in the past year. That trend continued as 2010 ended on a high note, with the Federal Reserve releasing the December industrial production and capacity utilization numbers on Friday, indicating gains in both key areas.

In December, industrial production increased by 0.8% to 94.9% of its 2007 average. With this increase, 2010 ends the year with an annual industrial production increase of 5.8%, a significant improvement over the past two years when industrial production dropped 7.6% in 2008 and 3.8% in 2009. Several key sectors saw solid production growth during the month. The utility sector, primary metals sector and petroleum and coal products sector saw the largest production jumps in December with production increasing by 4.3%, 3.7% and 2.4%, respectively. Other sectors that saw solid growth included the computer and electronic products sector (1.7%), plastics and rubber products sector (1.5%), apparel and leather sector (1.2%) and the chemicals sector (1%).

The total industry capacity utilization increased by 0.6% in December, boosting the overall percentage of factories being utilized to 76%. While this is still 4.6% below the 1972-2009 average of 80.6%, over the last year capacity utilization in the U.S. has grown from 71.6% to 76%, a solid sign of overall economic recovery. Some key sectors have been driving this increase in capacity utilization across the U.S. The petroleum and coal products sector and the mining sector are seeing very high capacity utilization with petroleum and coal products sitting at 87.3% in December and mining at 88.9% for the month. Several other sectors have also maintained high capacity utilization, including the apparel and leather sector (81.6%), the electronic equipment, appliances and components sector (79.9%), the food, beverage and tobacco products sector (79.4%) and the utilities sector (82.3%).

Combine these increases in production and capacity utilization with proposed capital and maintenance spending numbers for the month, and we have some very clear signs of overall economic recovery in the U.S. December saw a 48% increase in capital and maintenance spending in the U.S. when compared to November of 2010. If all of the proposed projects currently scheduled to begin construction in January 2011 actually occur, then January will have seen an 84% increase in spending compared to December 2010. While the final percentage increase for January is likely to be somewhat lower once the month is over, there will still be significant industrial expenditure growth to begin the new year.

Given the growth pattern we are seeing in the industrial marketplace, all signs point to 2011 being a good, solid year for economic recovery across the U.S. Spending is on the rise after more than two years of erratic spending habits, while demand is slowly rebuilding as consumers feel more comfortable spending their hard-earned money, especially as the unemployment rate continues to drop. Provided there is not another major shift on Wall Street that panics the general public, 2011 will be the year of recovery for the U.S., with 2012 left to complete the process. We will have to see if the momentum can be maintained, but it appears that keeping the good times rolling should not be too difficult.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.