Thank the Weather for Industrial Production Increase in December 2010

After a relatively flat October and November (analysis here), Industrial Production (IP) came apparently came roaring to life in December 2010.  The headlines:

Industrial production increased 0.8 percent in December after having risen 0.3 percent in November. The rate of change for industrial production was revised down in November but revised up in September and October; the net effect of the revisions from July to November left the level of industrial production in November slightly higher than was previously reported. For the fourth quarter as a whole, industrial production increased at an annual rate of 2.4 percent, a slower pace than in the earlier quarters of the year. In the manufacturing sector, output moved up 0.4 percent in December with gains in both durables and nondurables. Excluding motor vehicles and parts, factory output increased 0.5 percent. The output of mines advanced 0.4 percent; the output of utilities surged 4.3 percent, as unusually cold weather boosted the demand for heating. At 94.9 percent of its
2007 average, total industrial production in December was 5.9 percent above its level of a year earlier. The capacity utilization rate for total industry rose to 76.0 percent, a rate 4.6 percentage points below its average from 1972 to 2009.

Econintersect uses unadjusted data to analyze data as there are distortions in the methodology caused by the recessionary period.

To the naked eye, it is easy to see industrial production is up in December 2010 – and was at the second highest level in 2010.  Prior to the Great Recession, December production levels were normally the fourth or fifth highest of the year.

Before we break out the champagne, we need to understand what caused this increase.  Here is the 0.8% growth in December broken down by component:

Manufacturing = 0.4% times 80% of IP = 0.32

Mining = 0.4% times 10% of IP = 0.04

Utilities = 4.3% times 10% of IP = 0.43

So the 0.8% MoM increase was over 50% caused from higher energy use – and this is using the adjusted data.  You can thank a cold winter and extra Christmas lights.

Related Article

Industrial Production Considered Flat for the Past Two Months  by Steven Hansen

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