Industrial production increased 0.3% in December, which is a slightly faster pace than expected. Nonetheless, the general forecast of a slowdown in growth for last month proved to be accurate. That's not a surprise, given the sharp 1.0% rise in industrial production in November, which was primarily due to an unsustainable snapback after the weather-related interruptions from Hurricane Sandy in October. Overall, industrial activity continues to grow a modest pace. December's report brings another positive contribution to the year-end economic profile. With today's update, there's even a stronger case for arguing that the economy ended 2012 in an expansion mode. But the latest news on the industrial front also raises some new challenges for thinking about January's numbers and beyond.
But first, let's recap the monthly data. As the first chart shows, industrial production increased in December for the second consecutive month. The manufacturing component posted a considerably stronger rise at year's end.
On a year-over-year basis, industrial production increased 2.2% through December. That's a decent if unspectacular rate of growth… if it holds. But as the next chart shows, the annual pace has been slipping recently--December's 2.2% gain is near the lowest levels in several years.
The issue here is whether the deceleration will continue in 2013. If it does, that will raise concerns about the economy overall, particularly if we see confirming signs of deceleration in other indicators.
For now, however, it's not obvious that industrial production is caught in a downward spiral. Even if it was, the relatively upbeat trends in other indicators through last month offer some positively biased offsetting ballast--including yesterday's encouraging retail sales report. But with macro risk lurking in the debt ceiling debate, it's hard to take anything for granted at the moment.
Nonetheless, it's getting easier to project that 2012 is on course to remain recession free. Thanks largely to the folks in Washington, however, 2013 may be another matter.