Industrial Production Finally Sets New Records

J: On January 17 the Board of Governors of the Federal Reserve System told us that total industrial production in the US hit a record level of 107.5 (2012=100) in December. This index is one of our oldest economic indicators.

The chart shows the 98-year history of the index. Despite the 17 recessions shown in the chart, the long-run trend is clearly very positive. Industrial production today is more than ten times greater than it was during World War II and more than five times bigger than it was during the Korean War.

Big increases in the mining sector, which includes oil and gas drilling, and in the electric and natural gas sectors drove the total index to the record. For the fourth quarter of 2017 as a whole, the index jumped 8.2 percent at an annual rate after being reduced in the third quarter by the impacts of Hurricanes Harvey and Irma.

On a year-over-year basis the total index grew by 3.6 percent in December. That was the strongest annual gain for any year since 1910.

Manufacturing makes up, by far, the largest share of the index, accounting for 74.2 percent of it in 2016. As the chart below shows, it has still not regained its peak of 108.5 in December 2007, the month that marked the start of the last recession. However, at 105.0 in December, it was up 2.4 percent from December 2016 and the highest level since the last recession began.

We should expect to see more new records for total industrial production this year. This should also be the year that manufacturing finally sets some new records as well.

We'll keep you posted. This important part of the US economy has been a growth laggard for far too long.