Dec. Industrial Production, Producer Prices, Jan. Mortgage Apps

Production Bounced Back in December, Prices Flat, Apps Up!

  • Industrial Production for December increased by 0.4 percent after falling 0.3 percent in November.
  • The Producer Price Index for December decreased by 0.1 percent as energy prices fell.
  • The core PPI gained 0.3 percent for the month, driven by light truck prices.
  • Mortgage Apps increased in early January according to the MBA Mortgage Application Survey.

Total U.S. industrial production increased by 0.4 percent in December after falling by 0.3 percent in November.  Part of the November dip was caused by mild weather as utility output fell by 0.6 percent. In December utility output fell another 2.7 percent. In fact, utility output has now fallen in every month since August, on a seasonally adjusted basis. Despite the drag from utilities the trend in total industrial production remains upward. Manufacturing output sputtered in November, down 0.4 percent, but came back strongly in December, up 0.9 percent for the month. Auto production has been the key force behind recent gains in manufacturing output. Total vehicle assemblies relaxed in November, to an 8.77 million unit annual rate, after hitting 9.17 in October. In December vehicle assemblies increased to an 8.91 million unit annual rate. Overall capacity utilization continues to improve, climbing to 78.1 percent in December. Many manufacturing industries are running at or above their historical average capacity utilization rates. The auto sector, still holding a great deal of excess capacity on the books, is keeping the average low. Recent anecdotal reports of auto factories running three shifts suggest that actual excess capacity in the auto sector may be less than reported by the Federal Reserve.

The producer price index for finished goods dipped slightly, by 0.1 percent in December as seasonally adjusted energy prices declined by 0.8 percent. Food prices backed off too, also falling by 0.8 percent for the month. Excluding food and energy, core producer prices increased by 0.3 percent, the largest monthly increased since July, as light truck prices geared up. On a year-over-year basis producer prices for finished goods are up a noticeable 4.8 percent.  However, this is down significantly from the 7.1 percent year-over-year gain posted last July. As we get to the other side of the energy price run-up of last spring, year-over-year inflation rates will continue to cool down.  Mortgage applications for early January were solid. According to the MBA’s Survey, total mortgage apps were up 23.1 percent for the week ending January 13. Both purchase and refi apps are up for the first two weeks of January…good news for the housing industry.

Market Reaction: Equity markets opened with gains. Treasury yields are steady at the long end. Oil is up to $100.79/barrel. The dollar is down against the yen and the euro.

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