Manufacturing activity remains weak in December

January 17, 2024

December industrial production rose 0.1%, just above expectations for a flat December. November was revised lower to 0% after October fell by 0.8%. Durable goods manufacturing fell 0.4%, where nondurables posted gains of 0.6% (largely due to petroleum related products and food). Mining rose 0.9%.

Motor vehicles and parts continued to rebound in December from the UAW strike earlier in the year, growing 1.6% after an upwardly revised 7.4% in November. Assemblies for cars are still down, but assemblies for light trucks jumped in November and December. The ramp-up from the strike is likely to take several months which should help the motor vehicle manufacturing numbers going into the first quarter of 2024. On the other hand, sales of electric vehicles have not been meeting targets. Auto makers are reducing their schedules for electric cars and trucks. Rental car companies are also selling their fleets of electric vehicles due to poor demand. That could buoy overall sales of new vehicles, despite tighter credit conditions and rising delinquencies for vehicle loans. New vehicle purchases are now dominated on the retail side by the top two income quintiles. All-cash sales surged in 2023, as wealthier buyers circumvented higher financing rates.

High-tech industries continued their gains as well, up 0.9% in December with the eleventh consecutive month of gains. Semiconductors were the bright spot in this group in December, up 1.5%. That brings the year-over-year gains in semiconductors to 19.9%, the highest it has been since April 2017. Communications equipment also gained, while computers fell for the first time since May 2023.

Oil and gas well drilling fell -0.6% in December, down 10.7% year-over-year. Well drilling is likely to remain suppressed given weakness in prices. Cash flow to producers is not enough to support drilling activity. Crude oil prices and retail gasoline prices are down, with a regular gallon of gas down to $3.01 in December from $3.69 just in September. That is offsetting some of the investment gains coming from chip plants and the incentives to reshore.