Weekly Economic Trends and Indicators

The Headlines:

U.S. Industrial Production (IP) increased by 0.5% in January, according to a recent report from the Federal Reserve. Over the last year, IP has increased by 2.0%.

According to the same report, capacity utilization in the U.S. increased from 77.5% to 77.8%, which is about 2.3% below its long-run (1972-2023) average.

The Details:

Looking specifically at the manufacturing component of IP and capacity utilization, we find that manufacturing IP has fluctuated by plus or minus 0.7% over the last part of the year but ended up 1.0% higher compared to January 2024. Fabricated metal products (NAICS code 332) and machinery (NAICS code 333), both of which are well-represented in the Quad Cities area, were flat to slightly down in January. Fabricated metal product IP is down 1.3% in the last 12 months while machinery IP is up 1.3% in the same period of time. Motor vehicles and parts (NAICS code 361-3) have been the hardest hit over the last year, down 5.9%.

Manufacturing capacity utilization has been essentially unchanged since we last reported on it in this blog. This corresponds to essentially flat labor market trends in manufacturing both nationally and locally.

The Context:

The last time we saw this kind of flat IP at the national level combined with flat to slowly declining manufacturing employment locally was the period from 2012 to 2014. Both of these three-year periods of time were characterized by rapid growth during the recovery from a recession followed by multiple years of a very slow retreat from the peak. The chart below shows the path of manufacturing jobs locally during these two episodes. When this happened in the 2010s, the decline finally reversed in 2017, in part due to better conditions in the global economy.

One important difference between these episodes is that in the 2012-2014 period the economy was in a very slow recovery following the global financial crisis. Interest rates were near zero and real GDP growth was below trend. In contrast, the COVID-19 recession was deep but extremely short with a very strong recovery. Interest rates rose during this period with GDP growth at or above trend. Today's economy puts us in a much stronger position for growth.

Furthermore, much has changed in the local economy since then. Today’s manufacturing employment, though down from the post-COVID peak, is still well above levels seen in the late 2010s. Manufacturing technology has improved, and skill requirements are higher. Data at both the national and local level shows that the economy still has capacity for manufacturing to grow once more favorable conditions return.

Next week: Quad Cities housing market update